Home Sales Report Falling Again

Is the housing market back to its savagely unhealthy state? Recent reports on existing home sales reveal a concerning decline in the number of days on the market, dropping to just 22 days. But what does this mean for potential homebuyers?

Contrary to popular belief, this decline isn't solely due to a massive housing credit boom or shortage of homes. Purchase application data indicates historical lows in credit growth, ruling out the former. Instead, it's a scarcity of available homes that's driving this trend. Active listings are near all-time lows, emphasizing the intense competition in the market since 2020.

With total active listings at 1.04 million (compared to the historical norm of 2-2.5 million), the market faces unique challenges. However, it's important to note that today's market isn't a repeat of the 2008 crisis. The U.S. housing market's inventory channels have transformed, aligning with the changes in housing credit channels.

Despite a significant bounce in home sales earlier this year, expecting sustained growth may be unrealistic. We need to consider the abnormality of that event and the ongoing limited net volume growth. As we move beyond the seasonal impact on purchase applications, mortgage rates take the spotlight. Their fluctuations greatly influence the market.

While rates have been rising lately, our forecast suggests a range between 5.75% and 7.25% based on the projected 10-year yield of 3.21% to 4.25%. Keep an eye on jobless claims as they may affect the yield and subsequently impact mortgage rates. Additionally, recent banking crises and debt ceiling issues add further market stress, potentially affecting shorter-duration bonds.

It's crucial to observe the year-over-year comparisons in housing data, which are expected to improve as we move into the second half of the year. However, bear in mind that these improvements are primarily due to demand stabilization and easier comparisons resulting from the drastic decline in demand last year.

As we delve into the existing home sales report, we find that active listing growth remains negative year-to-date. Consequently, the days on the market are falling once again. Approximately half of the country is experiencing price gains, even in markets with lower prices. Multiple-offer situations are becoming common, indicating a bustling spring buying season.

Looking ahead, mortgage rates and the trajectory of the 10-year yield will greatly influence the market. It's crucial to monitor these indicators as they impact sales data.

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