Why home prices haven’t crashed even with high mortgage rates

Weekly housing inventory data

We will start with the price cut data percentage because it deserves a detailed explanation. 2022 was a historic year for housing as we had the most significant home sales crash ever, and mortgage rates went from 3% to 7% in the same year. That type of move is very abnormal and home sales simply collapsed, especially in the second half of 2022. 

Naturally, some people thought home prices would crash in 2023 as many market players said prices always follow volume. But not only did that not happen, home prices quickly got back to all-time highs. Then something even crazier happened: mortgage rates shot to to 8% but the number of homes taking price cuts never went above 2022 levels during this time.

In fact the price cut percentage consistently stayed 4% below 2022 levels. I believe this is due to the fact that home sales aren’t crashing anymore like they were in 2022. What happened between June 2022 to June 2023 can be confusing, so if you need more clarity I suggest listening to this podcast.  

Here is the price cut percentage data for the same week in other years:

• 2023 38%
• 2022 42%
• 2021 27%

As you can see, affordability is an issue, and the price cut percentage is higher now than in any period from 2015-2021, but still below 2022 levels.

Now lets take a look at the weekly inventory data. Last year, according to Altos Research, the seasonal peak for housing inventory was Oct. 28. the seasonal peak this year was on Nov. 17.

• Weekly inventory change (Dec. 1-Dec 8): Inventory fell from  555,717 to 546,424
• Same week last year (Dec. 2-Dec. 9): Inventory fell from  550,302 to 536,409
• The inventory bottom for 2022 was 240,194
• The inventory peak for 2023 so far is 569,898
• For context, active listings for this week in 2015 were 1,050,971 

The new listing data has been trending at the lowest levels ever for 17 months now. What 2023 data has shown me is that even with mortgage rates heading toward 8%, new listings data didn’t take a new leg lower — it stayed remarkably consistent all year long. This is a positive, and something I discussed on CNBC months ago, that we should see some flat-to-year-over-year growth data in the second half. Since most sellers are also buyers, getting growth in this data line will be a positive for home sales in 2024.

New listings data last week

• 2023 43,188
• 2022: 39,149
• 2021: 46,881

In 2024, what we want to see is new listings data grow back to 2021 and 2022 levels in the spring. This will bring more inventory to the marketplace and get more sellers, who will also be buyers.

Mortgage rates and the 10-year yield

Last week was another interesting week for bond yields and mortgage rates. We almost broke under 7% mortgage rates for the first time in a while, getting as low as 7.04%. We ended the week at 7.09%, and this was during jobs week where had two weaker-than-anticipated labor reports and two…