Weekend Talking Points - '1-2 Punch'

It was a rough week for would-be buyers, as two of the most important economic data points (BLS jobs report and CPI inflation) both came in hotter than expected, helping to propel mortgage rates back near 7.4%.

National inventory continues to rise. According to Realtor.com’s residential listing database, active inventory in March 2024 rose 4.5% MoM to 695,000 units (that’s up 23.5% YoY!) New listings, meanwhile, jumped 16.6% MoM and were up 15.5% YoY. [Much more on this later.]

A very strong March jobs report last Friday. The US economy added 303,000 jobs in March (way ahead of expectations), and the unemployment rate went DOWN (from 3.9% → 3.8%). [Bureau of Labor Statistics] Recall that the ADP employment report (released earlier in the week) also beat expectations.

A frankly terrible CPI report. With energy prices rising, we knew that it would be difficult to make much progress on inflation. But the March “headline” CPI (Consumer Price Index = inflation for you and me) rose from +3.2% YoY in February to +3.5% YoY in March, sending 10-year US treasury yields above 4.5%. [BLS]

More million-dollar cities. There are now 550 cities in the US with median home values over $1 million, up from 491 last year. 38% of them are in CA, 12% in NY, and 9% in NJ. [Zillow] Not coincidentally, these are three of the top 4 states in terms of net migration outflow.

Millennials are back. OK, they never really left. But in 2023, they reclaimed their position (from the Boomers) as the largest group of homebuyers — at 38% of total. [NAR]

A (slightly) better time to buy. Fannie Mae’s HPSI declined slightly in March on higher mortgage rate expectations, but the % of people who think it’s a Good Time to Buy actually rose to its highest level in 9 months. Are people getting used to mortgage rates around 7%? [Fannie Mae]

MBS Highway’s April Housing Survey. The national housing index rose 3 points in April 2024, resuming its strong, upward trajectory after a brief pause in March. The Northeast and Mid-Atlantic remain the hottest regions, and the West region is resurgent. [More on this later.]

A Closer Look at Inventory Levels

On a nationwide basis, the inventory of homes for sale is up 24% year over year — great news for buyers. In fact, the March 2024 figure for active inventory (695,000) is the best March since 2020 (937,000). That’s right, the current inventory level is now only 26% below its pre-pandemic level. (Remember when it was 50% below?!)

Of course, that’s at the national level. If you read Talking Points last week, you saw my analysis of the Florida market. On a statewide basis, Florida’s active inventory is already at pre-pandemic levels. Several of the most important metros in the Sunshine State have inventory levels that are ~20% above pre-pandemic levels. And don’t forget: Florida is responsible for 19% of active listings nationwide and 14–15% of new listings every month. Florida matters. A lot.

This is a big country and the inventory situation can be very different from city to city. With this in mind, I decided to look at the March 2024 data for the Top 100 cities tracked by Realtor.com. Here’s what I learned:

• Biggest YoY increase in active listings: Cape Coral (101% YoY), North Port-Sarasota (+85% YoY), Palm Bay-Melbourne (+59% YoY), Tampa-St. Petersburg (+58% YoY), Orlando-Kissimmee (+53% YoY), Deltona-Daytona (+53% YoY), Myrtle Beach-Conway (+51% YoY), McAllen-Edenburg (+49% YoY), Miami-Fort Lauderdale (+48% YoY), Denver-Aurora (+48% YoY), Knoxville (+46% YoY), Little Rock (+45% YoY), Lakeland-Winterhaven (+44% YoY), Chattanooga (+42% YoY), Jacksonville (+39% YoY), Memphis (+38% YoY), and San Antonio (+37% YoY).

[Notice a pattern? Florida, Texas, Tennessee.]

• Biggest YoY decrease in active listings: Las Vegas (-33% YoY), Bridgeport-Stamford (-15% YoY), Ogden-Clearfield (-13% YoY), Honolulu (-13% YoY), Poughkeepsie (-11% YoY), Boise (-10% YoY), Springfield MA (-10% YoY), and Chicago (-8% YoY).

[We’re seeing a recovery in markets that got hit early (Las Vegas and Boise), and continued tightening inventory in relatively affordable Midwest metros and seemingly-hot-forever New England markets.]

• Highest DOM (Days on Market): New Orleans (67), Albany NY (62), Baton Rouge (64), Cape Coral (64), Syracuse (61), Honolulu (60), North Port-Sarasota (59), Lakeland-Winterhaven (59), McAllen-Edenburg (59), El Paso (58), Miami-Fort Lauderdale (58), Deltona-Daytona (57), Myrtle Beach-Conway (57).
• Lowest DOM: San Jose (22), Rochester (22), Worcester (23), Boston (24), San Francisco (27), Springfield MA (27), Columbus (29), and Milwaukee (29).

Just out of interest, I extended the analysis to the Top 101–500 cities.

• Biggest YoY increase in active listings: Punta Gorda FL (+130% YoY) and Rapid City SD (+129% YoY)
• Biggest YoY decrease in active listings: Glenwood Springs CO (-33% YoY), Sioux Falls SD (-25% YoY), and Sheboygan WI (-21% YoY).

Mortgage Market

Two months ago, average 30-yr mortgage rates were at 6.6%. Today, they’re at 7.4%. It has been a terrible 10 days for the bond market, with “hotter” jobs growth (BLS for March) and a second-straight month of rising inflation (CPI for March) sending bond prices into a tailspin. The yield on the 10-year US treasury bond ripped above 4.5%, levels last seen in mid-November 2023.

Current odds on Fed rate cuts at upcoming FOMC meetings:

• May 1: 5% (down from 7% last week)
• Jun 12: 22% (down from 69% last week)
• July 31: 48% (down from 78% last week)
• Sept 18: 69%

Effectively, a rate cut in June got “priced out” this week, and the probability of a rate cut in July is now only 50/50.

They Said It — The NAR Settlement

“So what do you tell your clients? Clients are already saying ‘I keep hearing that commissions are going to be slashed now.’ I think it’s important to explain that this is NOT the case. That is how the settlement is being marketed [by the attorneys and media] but no, this is just a decoupling…Personally, I don’t think this is good for the consumer.” — Brian Icenhower, ICE Podcast

“Remember, sellers want buyers coming in. The more buyers that come in the house, the better price they get. So sellers are going to find a way to ‘make good’ with the buyers, whether it be paying for closing costs, or a myriad of other ways…I don’t think the ruling is a big deal honestly.” — Barbara Corcoran, Founder of the Corcoran Group

“With this settlement, the risk of discriminatory practices, like pocket listings, could become more common, threatening to roll back hard-won gains in fair housing and equal opportunity,” — Dr. Courtney Johnson Rose, President of the National Association of Real Estate Brokers.

“The reality is that what just transpired with NAR’s settlement, to eliminate the ability to show cooperative compensation, is going to absolutely crush the first-time homebuyers, and FHA and VA buyers…and it’s really disgusting to me.” — Jason Mitchell, Founder of JMG Realty

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