CHM Blog

All hat but no cattle for home sales

It’s no longer the case of ‘build it’ (or even ‘sell it’) and they will come. According to CNBC’s Diana Olick, the U.S. housing market is continuing to weaken, as potential buyers face stubbornly high mortgage rates, elevated prices and a limited supply of listings.

“Sales of previously owned homes fell 4.9% in January from the prior month to 4.08 million units on a seasonally adjusted, annualized basis, according to the National Association of Realtors. Analysts were expecting a 2.6% decline,” says Olick. “Sales were 2% higher than January 2024, but are still running at a roughly 15-year low.

Because this read is based on closings, contracts were likely signed in November and December when mortgage rates came down from over 7% to the 6% range. National Association of Realtors Lawrence Yun adds, “Mortgage rates have refused to budge for several months despite multiple rounds of short-term interest rate cuts by the Federal Reserve. When combined with elevated home prices, housing affordability remains a major challenge.”

With 1.18 million homes for sale at the end of January, there was an increase of 3.5% posted from December and 17% from January 2024. While inventory is gaining, it is still at a 3.5-month supply at the current sales pace. A six-month supply is considered balanced between buyer and seller. Olick reports that the average home for sale last month spent 41 days on the market —the longest since January 2020, pre-Covid.

That law of supply and demand is alive and well, continuing to pressure prices. “The median price of a home sold in January was $396,900, up 4.8% from the year before and the highest price ever for the month of January,” says Olick. “All four regions tracked by NAR saw price gains. About 15% of homes sold above list price, virtually unchanged from 16% in both the previous month and the year-earlier period.”

Yun adds, “More housing supply allows strongly qualified buyers to enter the market. But for many consumers, both increased inventory and lower mortgage rates are necessary for them to purchase a different home or become first-time homeowners.”

All-cash offers made up 29% of sales, a historically high number, but down from 32% the year before. First-time buyers are still struggling while accounting for 28% of sales — a share that is unchanged from a year ago but well below historical averages of about 40%.

Interestingly enough, home sales are faring significantly better at higher price points and falling at lower price points. For example, sales of homes priced between $100,000 and $250,000 dropped 1.2% year over year, while homes priced over $1 million rose nearly 27% from the year before.

But buyer traffic is reportedly weak, according to the nation’s Realtors. All hat. No cattle.

CNBC, TBWS

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I'm among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Neutral

Mortgage rates are getting some support today. The MBS market improved by +22 bps last week. This may have been enough to decrease mortgage rates or fees. The market experienced moderate volatility last week.

This Week's Rate Forecast: Neutral

Three Things: These are the three areas that have the greatest potential to impact rates this week. 1) Inflation, 2) Geopolitical and 3) Consumer Confidence.

1) Inflation: We will get the Fed's preferred measure of inflation (Core PCE) on Friday which is expected to increase by 0.3% on a MOM basis but fall from 2.8% to 2.6% on a YOY basis.

2) Geopolitical: On the radar this week are tariffs, DOGE, Ukraine/Russia, Israel/Hama, etc. Significant and unexpected movements in these and other theaters can have a big impact on rates.

3) Consumer Confidence: Following the UofM's Consumer Sentiment Index, we will get the Conference Board's Consumer Confidence on Tuesday. A weak report will help rates but a strong report will erode rates.

Treasury Auction: Here is this week's Treasury auction schedule:

02/24 2 year note

02/25 5 year note

02/26 7 year note

This Week's Potential Volatility: High

This morning markets saw some rocky trading with a small positive lean. Volatility has started high and may stay that way depending on what happens in the news.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

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