Here is the summary of the real estate market for the last week:
- The buying app data had a solid weekly gain of 25%. That’s a big leap, but context is critical.
- Housing inventory decreased by 566 units, which is not a significant decrease.
- Mortgage rates fell, but the bond market didn’t break above what I consider a critical level, so stabilization is more important for now.
Last weeks real-estate market the data provided mixed news. Buying app data had a strong week-over-week impression of 25% growthbut the most valuable metric is that the year-over-year declines were the lowest in many months. mortgage rates it ended the week at 6.15%, but the 10-year yield failed to break the critical level it was looking for and reversed higher on Friday.
Weekly home inventory fell, but not much. I want to see total inventory back to 2019 level; this would mean nar the data exceeds 1.52 million. In the latest existing home sales report, we hit 970,000. I think we can have a better performing real estate market if inventory goes up to that level, but we still have a A long way to go. We don’t want inventory to stagnate during this time of year; It must grow in spring.
Buy app data
Last week we saw a huge jump in purchasing app data of 25% week over week. Normally this would be epic news because we rarely see 25% week-over-week growth. However, we must remember that we have just entered the seasonal growth period, which runs from the second week of January to the first week of May, so context is always critical.
The most important piece of information for me was that the year-over-year decline in purchase requisition data was the lowest in months. The key with application data is to read the internals, especially after a cascading dip in demand, to see when a bottom is forming.
Given that November 9 these data have been improving, a fact that has quietly gone unnoticed by most people because much of the focus was on falling home prices. Internal data was beginning to show a bottom forming as mortgage rates fell.
This data line has not had a positive print year-over-year since May 19, 2021. COVID-19 has done a number on this data line, so a lot of adjustment needs to be done to better understand it.
The year-over-year purchasing app data is the most important because that’s the new volume growth. Since we are working from the mother of all low bars, any changes we may see this year need context. However, considering that mortgage rates have not yet fallen below 6%, it is encouraging to see that it is stabilizing with rates between 6.04% – 7%.
We want to focus on this data from now until the first week of May. After May, the total volumes always drop. Don’t forget that purchase app data is seen for at least 30-90 days, so it will take time for sales data to reflect what’s happening here. For now, consider this a simple stabilization.
weekly housing inventory
The downside from last week is that the weekly home inventory was down slightly. However, I will look on the bright side and say that the last two weeks have seen inventory stabilization. He Senior Research Weekly housing inventory data shows that two weeks ago, inventory grew 1,339 units and then decreased by 566 units last week. Hopefully, we’ll see the traditional spring inventory build faster than last year.
- Weekly Inventory Change (Jan 13 – Jan 20, 2023): Dropped from 472,688 a 472,122
- Same week last year (January 14-January 21, 2022): Fell from 283,656 a 276,865
In June, i predicted that as long as mortgage rates remain high, weak demand over time could create more inventory, and we could return to 2019 inventory levels in 2023, meaning inventory exceeds 1.52 million.
A week after that prediction, the new stock data declined faster and earlier than usual. By December, this led to total inventory levels break below 1 million. Even getting inventory back to 2019 levels would still mean total housing inventory was historically low.
As days on the market increase, naturally, more homes will stay on the market longer, which can increase total inventory levels, similar to what we saw last year. However, it will be difficult to surpass 1.52 million active listings if new listing data declines in 2023.
As you can see below in NAR’s total inventory data for 2022, inventory grows each year during the spring and summer, and then traditionally decreases in the fall and winter.
Given the seasonality factor, it is very important that we get traditional new listing growth every year for the housing market to function normally. In 2020, due to COVID-19, and then again in 2022, due to much higher mortgage rates, new pricing data fell markedly, which is a sign of a unhealthy real estate market.
In 2020, new listing data came back quickly as people became comfortable listing their homes during COVID-19. Now, it’s about mortgage rates and affordability, not a global pandemic.
10-Year Yield and Mortgage Rates
Last week, mortgage rates fell to a short-term low of 6.04%. However, the bond market guy in me just saw a test of a critical level fail, and the yield reversed higher on Friday. Mortgage rates ended the week at 6.15%.
Part of me Forecast 2023 for the 10-year yield is that if the economy holds firm, the 10-year yield range should be between 3.21%-4.25%that is, mortgage rates between 5.75%-7.25%. With the weak economy, bond yields could drop rapidly to 2.72%, that could bring mortgage rates close 5%.
Right now, the economic data is still firm and jobless claims are still low, although January is not the best month to take the jobless claims data too seriously. All in all, the first weeks of the year seem adequate for the real estate market.
The market believes that Federal Reserve the rate hikes are almost done and they should be cutting rates towards the end of the year. The Fed wants to make two or three rate hikes more than 0.25% and leave everything. I think the Fed should just call it quits; this way, you have a better chance of keeping short-term rates higher for longer.
next week
Today, the Conference Board released its leading economic index, a key indicator for all market participants, and it hasn’t shown bullish economic trends in a while. In July, I presented my red flag model of six recessions to the Conference Board just before I raised my sixth red flag of recession based on the index.
Other important housing market reports this week will be durable goods orders, new home sales and pending home sales. Pending home sales will be interesting as much of the recent housing data has been positive. This could be the last pending home sales report that does not take into account the best purchase application data; it might be a month too soon. However, we could see a bit of a bounce at the bottom. We will know on Friday.
As always, keep an eye out for unemployment claims on Thursday morning. The past few weeks have been good on this data line as it has been trending down. Last week, the main jobless claims data was released under 200,000 again, until 190,000, showing how strong the job market is.
Just remember, when you see a lot of layoff announcements, it doesn’t necessarily mean people are filing unemployment claims right away. Especially when it comes to layoffs at tech companies, they may need more time to seep into the system.
Me Fed pivot model you need jobless claims to top 323,000 on a four-week moving average. As you can see below, we are nowhere near that, but the bond market should get ahead of the Federal Reserve before the turnaround.
Overall, last week’s data was good, but not great, for the housing market. I would like to have seen inventory grow, not decrease, but I will take a slight decrease as a small victory. The 10-year yield not breaking that critical level isn’t too shocking, but to see that level get a good test was exciting.
Shopping apps had a significant week-over-week gain, but remember, context is critical with this line of data; we want to take this one week at a time and read the data line correctly and not overdo it too much.
