Weekend Talking Points - 'Inventory'

The tamer December CPI report helped mortgage rates move lower. Meanwhile, the inventory of homes for sale continues to rise. Lower rates + more inventory? Let’s hope the trend continues as the spring selling season approaches!

Wholesale inflation (PPI) slowed in December. “Headline” PPI (Producer Price Index = inflation faced by companies) rose 0.2% month-over-month, while “core” PPI was flat MoM.

Tamer consumer inflation (CPI) too. It might not be obvious from the graph below, but the December CPI (Consumer Price Index = inflation for you and me) was very good news for the bond market (and mortgage rates). December “core” CPI rose just 0.2% MoM, and the year-over-year inflation rate moved from 3.30% in November to 3.25% in December. [BLS]

TP: Remember, the Fed’s 2% target is based on “core” PCE, not CPI.

Shopping for gifts. December retail sales rose 0.4% MoM. That was slower than expected, but still quite strong. “Core” retail sales (which exclude automobiles and gas at the pump, etc.), meanwhile, were up 0.7% MoM. [BEA]

Builders a bit more bullish. The National Association of Homebuilders’ sentiment index rose 1 point in December to 47 — near the 50 breakeven point between bearishness and bullishness. Looking at the components of the index, Present Conditions moved into bullish territory (48 → 51), and Buyer Traffic edged higher (32 → 33), but Future Conditions saw a big drop (66 → 60), mostly like due to the cumulative impact of mortgage rates rising since October. [NAHB]

Mortgage rates. The combination of the tamer PPI and CPI reports saw the yields on US treasury bonds move sharply low, which helped average 30-yr mortgage rates approach 7.1%. [MBS Highway, Mortgage News Daily]

HOAs: Here, there, and everywhere. 40.5% of properties in 2024 had HOA fees, up from 39.2% last year. The median HOA fee was $125/month, up 14% from $110 in 2023. In many metros (including Houston and Las Vegas) the % of listings with HOA fees was >75%! [Realtor.com]

A Deeper Look at Inventory

Every month, Realtor.com updates its Residential Listing Database, which includes pricing and inventory statistics at the national, state, county, city and ZIP code levels.

At the national level, we ended 2024 with 871,509 active listings (this figure excludes homes that have already gone under contract). That figure was down 9% month-over-month (pretty normal for a December), but it was up 28% year-over-year. And if you compare 871,509 to pre-pandemic (December 2019 = 1,033,887), it’s only down 16%.

Takeaway #1: Nationwide active inventory is approaching pre-pandemic levels.

But when you drill down to inventory at the state level, a different story emerges. The Top 3 states (Florida, Texas, and California) account for 36% of active listings nationwide, but they only represent 27.1% of the US population. Florida, in particular, stands out with just 6.5% of the population but 17.6% of active listings. California, on the other hand, has 11.9% of the population but just 5.8% of active listings.

Takeaway #2: 30% of nationwide active listings come from Florida and Texas, where inventory levels are already 17–18% ABOVE pre-pandemic levels.

In fact, there are 9 states where active inventory is already above pre-pandemic levels. Not coincidentally, many of these states have major cities where home prices are flat or are going backwards. And they’re also the states that have seen the biggest increase in new home construction, so total supply is even higher.

Active Inventory (Dec 2024 vs. Dec 2019) is ABOVE Pre-Pandemic
Arizona: +19.9%
Texas: 18.0%
Florida: +16.8%
Tennessee: +15.7%
Utah: +12.0%
Idaho: +6.2%
Oklahoma: +4.8%
Washington: +4.7%
Colorado: 2.0%

At the same time, the inventory situation in many other states — especially in the Midwest and Northeast — is very, very different. There are 1,100 listings in the entire state of Rhode Island, which while geographically small, has a population of around 1.1 million. For comparison, Montana also has 1.1 million people, but it’s got 4,400 active listings.

Active Inventory (Dec 2024 vs. Dec 2019) in WAY BELOW Pre-Pandemic
Connecticut: -72.4%
New Jersey: -60.7%
Illinois: -59.1%
Rhode Island: -58.6%
Vermont: -57.0%
New Hampshire: -50.1%
West Virginia: -49.3%
Maine: -48.5%
Massachusetts: -46.1%

Takeaway #3: In many Northeastern and Midwestern states, the 2023 and 2024 inventory rebound didn’t really happen.

Here’s another way to look at it. If you strip out the Florida and Texas inventory, the remaining 48 states have active inventory that is still 27% below pre-pandemic levels.

If you’re interested in looking at the inventory situation in your local market, just send me an email: scott@listreports.com. The county and metro level data is generally good, but the ZIP level info can get patchy, especially in smaller ZIPs.

Mortgage Market

The December PPI and (especially) CPI reports provided much-needed relief to a bond market that had been suffering from the Fed’s new “dot plot” forecasts (fewer interest rate cuts), and December BLS jobs report (much stronger than expected jobs growth).

That said, average 30-yr mortgage rates remain above 7% [Mortgage News Daily] and the probability of a rate cut at the Fed’s next meeting on January 29 is basically ZERO.

Here’s what the Fed Funds Rate futures market is currently pricing in for rate cuts. Note that the current Fed Funds Rate policy range (AFTER the 25 bps cut announced on December 18) is 4.25–4.50%.

• Jan 29 FOMC Meeting: 97% probability that the Fed will stay on hold. 3% probability of a further 25 bps cut.
• March 19 FOMC Meeting: 68% probability that the policy rate will remain at 4.25–4.50%. In other words, no rate cuts in either January or March. 31% probability that rates will be at 4.00–4.25%, with one 25 bps cut — mostly likely in March.

They Said It

‍“Builders are facing continued challenges for housing demand in the near-term, with mortgage rates up from near 6.1% in late September to above 6.9% today. Land is expensive and financing for private builders remains costly. However, there is hope that policymakers are taking the impact of regulatory hurdles seriously and will make improvements in 2025.” — Carl Harris, NAHB’s Chairman

“NAHB is forecasting a slight gain for single-family housing starts in 2025, as the market faces offsetting upside and downside risks from an improving regulatory outlook and ongoing elevated interest rates. And while ongoing, but slower easing from the Federal Reserve should help financing for private builders currently squeezed out of some local markets, builders report cancellations are climbing as a direct result of mortgage rates rising back up near 7%.” — Robert Dietz, NAHB’s Chief Economist

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