The Census Bureau released the monthly New Home Sales report today, showing a decrease from 719k in September (revised down from 759k initially reported) to 679k in October. While this number is below the long term trend that emerged after the Great Financial Crisis, it's still in league with the pre-covid highs. The post-covid story for the housing market has been one of ever-dwindling inventory and its various effects. One of the most obvious effects of lower EXISTING home inventory is that NEW homes have captured a larger share of the market. Existing homes have moved lower, almost exclusively from the peak. The divergence from New Home Sales has been especially notable since mid-2022 when rates really began skyrocketing. The following chart shows the percent change in both new and existing sales from the peak. Perhaps most notable is the price trend during the time when sales were down more than 40%. An inventory crunch is the only thing that could explain the juxtaposition of a sharp decline in sales and a sharp increase in values, but it's important to note the 3rd ingredient in play during the highlighted time frame above: incredibly low rates. Prices stopped accelerating almost as soon as rates began to jump. What's the takeaway for the housing market? Today's report doesn't tell us much. Anything in the 650-750k range is fairly neutral. Additionally, the outlook may be rapidly changing to whatever extent the highest interest rates are behind us. That's a possibility that will receive more clarity with next week's economic data, but it will take several months to confirm.
An improved (albeit slightly) mortgage interest rate environment helped push the volume of mortgage applications higher during the week ending November 17. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of that volume, grew 3.0 percent on a seasonally adjusted basis from one week earlier. However, it declined fractionally on an unadjusted basis. The Refinance Index increased 2 percent from the previous week and was 4 percent lower than the same week one year ago. The refinance share of mortgage activity represented 32.4 percent of total applications, up from 31.9 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index rose 4.0 percent from the prior week but declined 1.0 percent unadjusted. Purchase applications were 20 percent lower than the same week one year ago. [purchaseappschart] “U.S. bond yields continued to move lower as incoming data signaled a softer economy and more signs of cooling inflation. Most mortgage rates in our survey decreased, with the 30-year fixed mortgage rate decreasing to 7.41 percent, the lowest rate in two months,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “ Mortgage applications increased to their highest level in six weeks but remain at very low lev els. Purchase applications were up almost four percent over the week, on a seasonally adjusted basis, as both conventional and government purchase loans saw increases. The average loan size on a purchase application was $403,600, the lowest since January 2023. This is consistent with other sources of home sales data showing a gradually increasing first-time homebuyer share.”
Existing home sales achieved their lowest annual level in ten years in September, and now appear to have doubled down. The National Association of Realtors® (NAR) said sales of pre-owned single-family homes, townhouses, condominiums, and cooperative apartments fell another 4.1 percent in October to an annual rate of 3.79 million homes. This is 14.6 percent below the 4.44 million level of sales in October 2022. Single-family home sales decreased to a seasonally adjusted annual rate of 3.38 million, a 4.2 percent decline from 3.53 million in September. Condo/co-op sales fared slightly better, slipping only 2.4 percent month-over-month to an annual rate of 410,000 units. Both single-family and condo/co-op sales were 14.6 percent lower than the same month last year. [existinghomesdata] Analysts had expected a less drastic decrease from the 3.95 million level of sales in September. Both Econoday and Trading Economics had consensus estimates of 3.9 million. "Prospective home buyers experienced another difficult month due to the persistent lack of housing inventory and the highest mortgage rates in a generation," said NAR Chief Economist Lawrence Yun. "Multiple offers, however, are still occurring, especially on starter and mid-priced homes, even as price concessions are happening in the upper end of the market." There were 1.15 million housing units available for sale at the end of October. This is an increase of 1.8 percent from the previous month but 5.7 percent fewer homes than a year earlier. Unsold inventory sits at a 3.6-month supply at the current sales pace, up from 3.4 months in September and 3.3 months in October 2022.
Both of the key metrics for residential construction, housing permits, and housing starts, beat analysts’ expectations in October. The U.S. Census Bureau and Department of Housing and Urban Development said permits rose 1.1 percent compared to September while housing starts increased by 1.5 percent. Permits were issued at a seasonally adjusted annual rate of 1.487 million units compared to 1.471 million units in September. The September estimate was only a slight revision from the 1.473 million originally reported. Analysts polled by Econoday had estimated that permits would come in at 1.463 million units. [housingpermitschart] The permits issued in October 2023 were 4.4 percent fewer than the 1.555 million permits authorized in October 2022. The annual rate of permitting for single-family houses was 968,000 units, 0.5 percent higher than the 963,000 units in September and an improvement of 13.9 percent year-over-year. Multifamily permits increased by 2.2 percent to 469,000 but dropped 27.9 percent compared to October 2022. On a non-adjusted basis, there were 124,000 permits issued last month, 79,700 of which were for single-family houses, an improvement on the relative numbers in September of 116,700 and 76,500. Permits for the first nine months of 2023 total 1.252 million, down 13.8 percent from the same period last year. The 773,600 permits for single-family houses are a reduction of 10.6 percent from the same period last year and the 432,300 multifamily represent a decrease of 20.1 percent.
The National Association of Homebuilders and Wells Fargo releases the results of a survey of NAHB members each month regarding the health of the homebuilding sector. While officially referred to as the Housing Market Index (or HMI), the headline number is essentially "builder confidence." After rising steadily from the end of 2022 through July, confidence has been in a tailspin across all categories. Viewed against the backdrop of mortgage rates, it's impossible to miss the general symmetry between higher rates and lower confidence. As rising rates gathered steam in the summer months it's not a huge surprise to see a reversal in the HMI. Now in the most recent report (the one released today), builders were responding to the survey just as rates were flirting with 8%, but before this week's CPI helped get us more than halfway back to 7%. By no means can we conclude that a few weeks of stellar rate improvements will be enough to turn builders' frowns upside down, but it's safer to expect such things if the rate trend continues. The point for today is that this particular survey comes at just about the worst possible time for a data series that has recently been almost exclusively a function of rates.
Even though mortgage interest rates changed only slightly, the volume of mortgage applications moved higher for the second time in as many weeks. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of application volume, increased 2.8 percent on a seasonally adjusted basis from one week earlier and was up 0.4 percent before adjustment. The Refinance Index gained 2.0 percent compared to the previous week and was 7 percent higher than the same week one year ago. Refinancing accounted for 31.9 percent of total applications, up from 31.4 percent the prior week. [refiappschart] Purchase applications rose 3.0 percent on a seasonally adjusted basis but slipped by 0.3 percent before adjustment. The Purchase Index was 12 percent lower than the same week one year ago. [purchaseappschart] “Although Treasury rates dipped midweek, mortgage rates were little changed on average through the week. The 30-year fixed mortgage rate remained at 7.61 percent, about 30 basis points lower than three weeks ago,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Both purchase and refinance applications increased to the highest weekly pace in five weeks but remain at very low levels. Despite the recent downward trend, mortgage rates at current levels are still challenging for many prospective homebuyers and current homeowners .” Highlights from MBA’s Weekly Mortgage Applications Survey
A quarter-point decline in 30-year fixed-rate mortgage (FRM) interest pushed mortgage application activity higher across the board during the week ended November 3. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage application volume, increased 2.5 percent on a seasonally adjusted basis from one week earlier, the largest increase since mid-September . The unadjusted Index was 1.0 percent higher. The Refinance Index rose 2.0 percent from the previous week and was 7 percent lower than the same week one year ago. Refinance applications accounted for 31.4 percent of the total, up from 31.2 percent the prior week. [refiappschart] The seasonally adjusted Purchase Index increased 3.0 week-over-week and was 1.0 percent higher before adjustment. Purchase volume was 20 percent lower than the same week in 2022. [purchaseappschart] “The 30-year fixed mortgage rate dropped by 25 basis points to 7.61 percent, the largest single week decline since July 2022,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Last week’s decrease in rates was driven by the U.S. Treasury’s issuance update, the Fed striking a dovish tone in the November FOMC statement, and data indicating a slower job market. Applications for both purchase and refinance loans were up over the week but remained at low levels. The purchase index is still more than 20 percent behind last year’s pace, as many homebuyers remain on the sidelines until more for-sale inventory becomes available .”
Mortgage application volume moved lower for the third consecutive time during the week ended October 27 , losing another 2.1 percent on a seasonally adjusted basis. The Mortgage Bankers Association (MBA) reported a 3.0 percent decline in its mortgage volume index on an unadjusted basis. The Refinance Index decreased 4 percent from the previous week and was 12 percent lower than the same week one year ago. The refinance share of mortgage activity dipped to 31.2 percent of total applications from 31.4 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index decreased 1.0 percent and 2.0 percent on an unadjusted basis. Purchase activity was 22 percent lower than during the same week in 2022. [purchaseappschart] “Mortgage applications declined for the third straight week as mortgage rates remained elevated, with all rates around 30 basis points higher than they were a month ago. The 30-year fixed rate dipped slightly to 7.86 percent but remained close to 23-year highs and has been above the 7-percent level since early August 2023,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The impact of higher rates continued to be felt across both purchase and refinance markets. Purchase applications decreased to their lowest level since 1995 and refinance applications to the lowest level since January 2023. Applications for government loans saw much larger weekly declines than conventional, with government purchase applications down 3 percent and refinances down 9 percent."
Even with interest rates at a two-decade high and mortgage applications and existing home sales slipping back to 20th-century levels, home prices continue to rise. The S&P CoreLogic Case-Shiller indices increased for the seventh consecutive month while the Federal Housing Finance Agency (FHFA) reports a ninth straight gain in its Housing Price Index (HMI). Case-Shiller’s U.S. National Home Price NSA Index, which covers all nine U.S. census divisions, reported a 2.6 percent annual change in August, up from 1.0 percent in the previous month. The 10-City Composite showed an increase of 3.0 percent, compared to 1.0 percent in July and the 20-City Composite annual gain rose from 2.0 percent to 2.2 percent. CoreLogic Chief Economist Dr. Selma Hepp says any respite from surging prices might only be temporary. “Although housing prices have increased significantly this year, climbing 5 percent from the early-year low, higher mortgage rates, and seasonal trends will slow further monthly gains – with some possible declines in winter months ,” she said. “Nevertheless, the year-to-date gains indicate that growth will pick up through the end of 2023 compared to last year’s slump during this time period.” Chicago posted the greatest appreciation among the 20 cities for the fourth consecutive month. Seven of the 20 reported lower prices in the year ending August 2023 than in the year ending July 2023 while 12 cities reported higher prices. Nineteen of the 20 cities show a positive trend in year-over-year price acceleration compared to the prior month.
There's not much by way of "new news" for the housing market when it comes to sales data. New home sales continue strongly outperforming while Existing and Pending Sales suffer. This week's reports for the month of September offer no objection to that thesis. Yesterday's New Home Sales report showed a 12.3% surge to an annual pace of 759k. This is a notoriously volatile data series in month-to-month terms, but September's gains were more than enough to offset the downtick seen in August. The result is the highest sales pace since 2021 when the housing market was still decelerating from the post-covid surge. Improvement was broad-based across regions. As is the norm, the southern region does most of the heavy lifting with the West playing a supporting role. The Midwest is measurable but barely, and the Northeast continues to be "out of land." Still, the Northeast managed a 22.5% increase from last month, adding 4k to the total. Contrast that to a 14.6% uptick in the South for a total addition of 36k. Builders continue working through their construction pipelines. In non-seasonally adjusted terms, unsold homes under construction remain in the 260k range, down from the low 300s in late 2022. Completed homes have consistently hovered in the same 60-75k range. One of the most notable shifts in the data series is the percentage of homes in the 200-299k price range. 21% of homes fell into that category in 2021, followed by only 9% in 2022. With rates and median prices increasing since then, it's a surprise to see a bounce back to 16% of the market in the most recent data. Granted, that's just for September, but the 2023 average is already up to 13%. If you've seen an ad for a shoebox on a postage stamp recently, you have a sense of how these numbers could actually make sense.