Weekend Talking Points - 'Cruel'

It’s been a very cruel October for would-be buyers, with average 30-yr mortgage rates spiking on concerns about job market strength, stubborn inflation, and fast-rising US debt levels. Looking on the bright side, however, inventory levels continue to rise and competition levels are falling.

Existing home sales are “stuck.” Despite much lower mortgage rates over the prior four months, existing home sales in September still fell 1.0% month-over-month to a seasonally adjusted, annualized rate (SAAR) of 3.8 million units. This was a disappointing figure. [NAR]

TP: We’re getting sadly used to monthly sales figures below 4 million SAAR. What you may not realize is that this means 2024 could end up having the weakest existing home sales in 30 years. [More on this below.]

Median sales prices slip. The median sales price for existing homes in September fell 2.3% MoM to $404,500. But that was still UP year-over-year by 3.0%. Looking at the regions, the Northeast saw the strongest price growth (+6% YoY), and the South the weakest (+0.8% YoY). [NAR]

Competition is falling. The Realtors Confidence Index for September showed that homes were seeing fewer multiple bidders and a slower pace of sales compared to the same time last year. In other words, this is more than just a seasonal thing. [NAR]

At least new home sales climbed. In September, new home sales rose 4.1% MoM (+6.3% YoY) to 738,000 (SAAR) units. That is both the highest figure in 2024, and the best result going back to May 2023.

The median price of new homes sold rose 3.7% MoM to $426,300, but recall that this figure can be skewed by the regional mix of homes sold during the month (if you sell fewer homes in the cheaper Midwest, and more in the pricey West, the median price rises).

TP: In September, 16% of the total homes sold (existing + new) were new homes. That figure is typically closer to 8–10%. But this says more about the “stuck” nature of existing home sales than it does phenomenal new home sales.

Redfin sees home price growth. In contrast to the NAR data, Redfin’s HPI (Home Price Index) saw national home prices rise 0.5% MoM in September, the fastest pace of growth since April. That said, the HPIs for 13 of the nation’s Top 50 metros did decline MoM. [Redfin]

Rents went backwards in August? Entry-level rents fell 0.2% month-over-month in August (they normally rise during this month) and overall rent growth slowed. [CoreLogic]

Existing Home Sales: “On Track for Worst Year Since 1995”?

That was the alarming headline from a Wall Street Journal article yesterday — and it turns out to be correct. In the real estate space, we mainly talk about SAAR figures because they make it easier to compare low season months (Feb) with high season months (May). But those SAAR figures are built on “raw” data (the actual sales figures for the month).

Well, the National Association of Realtors also provides the “raw” existing home sales figures. And if you add the 2024 monthly numbers through September, you get 3.07 million. How many existing homes are we likely to sell in the 4th quarter of 2024? Well in 4Q 2023, we did 929K.

This suggests that our full-year 2024 existing home sale figure will be around 4.0 million (3.07 million + 900K). And that would be 2% below the 4.1 million figure in 2023, which was already the lowest figure in 30 years. That’s right — in 2024 we could sell fewer existing homes than we did in the wake of the Housing Crisis.

Here’s what’s really amazing about this. Since 1995, the US population has grown by 30%, or nearly 80 million more people! This, combined with the recent, dramatic fall in transaction volumes means that the existing home sales per 1000 people has dropped from a high of 17 in 2020 to just 11.8 in 2024.

The average figure between 2012–2019 was 16.0. If we applied 16.0 to our current population, we SHOULD be selling existing homes at a pace of 5.4 million units SAAR.

Why Have Mortgage Rates Rebounded?

Since the Fed cut rates in mid-September, average 30-yr mortgage rates have moved UP from 6.11% to 6.92%. Why? That’s the question everyone is asking, and nobody really knows the answer. However, here are four of the most sensible responses, which in some combination could help to explain the big move:

• “Typical” post Fed rate cut moves. As incongruous as it sounds, it’s fairly common for treasury bond prices to fall (and mortgage rates to rise) immediately after the Fed initiates a rate cut cycle. It’s a ‘buy on rumor, sell on fact’ phenomenon. In this case, the market had already priced in multiple, large rate cuts before year-end.
• Unsupportive data since the Fed cut. The September BLS jobs report that came out on 10/4 was a blowout (+254K jobs, unemployment rate 4.2% → 4.1%), and then the latest inflation report saw “core” CPI rise from +3.2% YoY in August to 3.3% YoY in September. Would the Fed have cut rates 50 bps if they knew this report was coming?
• The October Effect. Historically, October has been a bad month for financial markets. The 1929 stock market crash and Black Monday in 1987 both happened in October. And in each of the last 3 years, bond prices have gotten hit hard in October. Recall that in October 2023, average 30-year mortgage rates peaked at 8.07%.
• Election-related Fears. Who will increase the annual deficit and federal debt most? (Sadly, advocating for a balanced budget renders one unelectable.) Would a Trump victory stoke inflation, or a Harris win push our national debt ($35 trillion = 125% of GDP) even higher?

Realtors Confidence Index for September

Competition levels typically peak around June. After June, inventory tends to build (days on market rises), there are fewer bidding wars, and a smaller percentage of homes sell for more than their listing price. You can discern that seasonality in most of the charts below. With that in mind, it’s worth noting that:

1. Competition levels are much lower than they were during the pandemic housing boom
2. Competition levels are a bit lower than they were at the same time last year
3. Realtors are more optimistic about the future than they were at the same time last year

Outlook for Buyer Traffic
In September 2024, only 20% of respondents expected an increase in buyer traffic over the next 3 months. That’s not terribly surprising considering normal seasonality, but that same figure was just 8% in September 2023. So Realtors aren’t bullish, but they’re more optimistic than they were at the same time last year.

Average Number of Offers Received per Sale
The average home sold in September 2024 had 2.4 offers. That was the same as in August 2024, but was down slightly from 2.6 in June 2023. Remember, two offers means that, on average, there was just one additional bidder (outside of the winner).

COVID High (2020–2022): 5.5 in April 2022
COVID Average (2020–2022): 3.8
Post-Pandemic Average (2023-): 2.8
September 2024: 2.4

% of Homes Sold Above List Price
20% of the homes sold in September 2024 transacted above their initial listing price. That was the same as in August 2024, but down from 26% in September 2023. The market is getting back to “normal” — where sales prices on average are 95–100% of the listing price.

COVID High (2020–2022): 61% in April 2022
COVID Average (2020–2022): 43%
Post-Pandemic Average (2023-): 25%
September 2024: 20%

Days on Market
The typical home sold in September 2024 had been on the market for 28 days. That was up slightly from 26 in August 2024, and up significantly from 21 in September 2023. Keep in mind that a higher number indicates a slower pace of sales (homes are lingering on the market longer).

Pre-Pandemic Average (2015–2019): 35
COVID Low (2020–2022): 14 in June 2022
COVID Average (2020–2022): 19
Post-Pandemic Average (2023-): 26
September 2024: 28

Mortgage Market

“It’s tough in this business. Once you think it’s going one way, it goes another.” That’s what a chief strategy officer at a major lender had to say in a newspaper article earlier this week. We were just starting to see signs of resurgent demand (pending sales rising YoY), and then October got cruel.

Note that the current Fed Funds Rate policy range (AFTER the 50 bps cut) is 4.75–5.00%.

• Nov 5: US presidential election.
• Nov 7 FOMC Meeting: 93% probability of a 25 bps cut, 7% probability of no cut. Last week, the odds were 90%/10%.
• Dec 18 FOMC Meeting: 70% probability that rates will be 50 bps below current levels (a 25 bps cut in each of the Nov 7 and Dec 18 meetings). 28% probability that rates will be 25 bps below current levels (one 25 bps cut and one ‘do nothing’ meeting).
• Jan 29 FOMC Meeting: 48% probability that rates will be 75 bps below current levels (a 25 bps cut in each of the 3 upcoming meetings).

They Said It

“Home sales have been essentially stuck at around a four-million-unit pace for the past 12 months, but factors usually associated with higher home sales are developing. There are more inventory choices for consumers, lower mortgage rates than a year ago and continued job additions to the economy.” — Lawrence Yun, NAR’s Chief Economist

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