Weekend Talking Points - 'Momentum'

Authored By:
Scott Bradley Brixen
John Smith
January 1, 2023
5 min read

A quiet week for news saw mortgage rates drift lower, while existing home sales delivered a big beat relative to expectations. PCE will be out this morning, but the bond markets are closed until Monday.

Nice sales surprise. February existing home sales jumped 9.5% month-over-month to a seasonally-adjusted, annualized rate of 4.4 million units — the highest figure we’ve seen since March 2023. The median sales price of $384,500 was up 1.4% MoM and 5.8% YoY. [NAR]

Competition and cash. According to the Realtors Confidence Index, 56% of the homes sold in February were on the market less than a month (up from 53% in January), 20% sold for more than their listing price (16% in January), and an incredible 33% of transactions were all-cash. [NAR]

Smaller new homes are selling well. New home sales were flattish in February at 660,000 units (SAAR). Median new home prices fell 3.5% MoM as the mix of homes sold skewed towards smaller and more affordable units. [Census Bureau]

Home price performance mixed.
The Case-Shiller national home price index rose +0.4% MoM (+6.0% YoY) in January 2024. That was an acceleration from the +0.2% MoM growth in both November and December 2023. That said, six of the 20 big city indexes went backwards (home prices decreased), up from 4 in December 2023. San Diego saw the strongest price growth (an incredible +1.4% MoM), while Denver saw the largest price decrease (-0.5% MoM).

The FHFA national price index fell 0.1% MoM (+6.3% YoY) in January in 2024. Four of the nine regions saw prices decrease on a seasonally-adjusted basis. The West North Central region [IA, KS, MO etc.] saw the biggest increase (a stonking +1.5% MoM); The South Atlantic region [FL, GA, NC, VA etc.] had the biggest decrease (-0.6% MoM).

Reminder: The Case-Shiller and FHFA home price indexes are more reliable measures of home price appreciation because they both use the repeat sales method. However, the FHFA dataset only looks at transactions involving a conforming mortgage (so no all-cash deals, which have lately been >30% of transactions).

Pending sales rose (a bit). For most of February, average mortgage rates were above 7%. That’s why I expected pending sales to fall in Feb. Instead, they rose 1.6% MoM. The demand is clearly still there, and higher inventory levels are helping.

On the Case (Shiller)

I described last month’s Case-Shiller home price data (Dec 2023) as “not particularly strong.” While the latest data (Jan 2024) did show an acceleration in price growth (from 0.2% MoM → 0.4% MoM), it also saw an increase in the number of cities where prices were decreasing. There is definitely a bit of a ‘double dip’ going on.

  • In February, the national index was up 6.1% year-over-year. San Diego’s index was up 11.1% YoY, and Los Angeles +8.8% YoY. Portland had the weakest growth at +1.0% YoY.
  • In February, 6 big city indexes went backwards (i.e., home prices declined): Denver, Phoenix, Cleveland, Detroit, Portland, and Seattle. In January, only 3 cities saw declines.
  • Portland’s index has declined for 4 straight months. Denver, San Francisco, and Seattle have seen prices decline 2 out of the last 3 months.
  • 7 big city indexes are still below their mid-2022 peaks (Dallas, Denver, Las Vegas, Phoenix, Portland, San Francisco, and Seattle).

Portland Index (Case-Shiller) Seasonally-Adjusted

Denver Index (Case-Shiller) Seasonally Adjusted

Cashed-up Competition

Every month, the NAR surveys Realtors and asks them for a combination of hard and soft data. The results of this Realtors Confidence Index (“RCI”) are released on the same day as the existing home sales figure. I consider it a very useful gauge of competitive ferocity.

Days on market (DOM) continues to rise. The median home sold in February 2024 was on the market for 38 days, up from 36 in January 2024, and 34 in February 2023. We should expect to see DOM fall as the spring selling season approaches. If it doesn’t, that could be a negative sign for price direction.

The % of properties selling above list price is also turning up. In February 2024, 20% of homes sold above their list price, up from 16% in January 2024, and 24% in February 2023. As the chart below illustrates, seller expectations have become more reasonable, and buyers less frantic.

Multiple offers stuck at 2.7x. It wasn’t that long ago that the average property sold had 5 offers. In February 2024, there was an average of 2.7 offers for every property sold, the same as in both January 2024, and February 2023.

One-third of purchases were all-cash. It’s really quite incredible if you think about it: 33% of the homes sold nationwide in February were purchased without a mortgage. That’s the highest figure I’ve seen in several decades.

First-timers hanging in there, but it’s tough. It’s already difficult for first-time homebuyers to come up with the down payment, closing costs, and insurance premiums etc. But with cash buyers offering quicker closes, it’s even harder for first-timers to compete. 26% of the homes sold in February 2024 were to first-time buyers. In a more normal market, that figure would be somewhere between 30–35%.

Mortgage Market

It was a fairly quiet week, with the prices of mortgage backed securities generally drifting higher, and average 30-yr mortgage rates easing to near 6.9%. New PCE data will be released this morning, but we’ll have to wait until Monday to see how the bond market reacts to it.

Our parent company, MBS Highway, believes that “core” PCE (which the Fed tracks closely) could remain stuck at +2.8% YoY, while “headline” PCE could actually increase from +2.4% YoY in January to +2.5% YoY in February.

Current odds on Fed rate cuts at upcoming FOMC meetings:

  • May 1: 4% (down from 11% last week)
  • Jun 12: 64% (down from 75% last week)
  • July 31: 78%
They Said It

“On a monthly basis, home prices continue to struggle in the face of elevated borrowing costs. Seventeen markets dropped over the last month [on a non-seasonally adjusted basis], while Minneapolis has posted a 2.4% decline over the prior three months. Only Southern California and Washington D.C. have stood up to the rising wave of interest rates and delivered positive returns to start the year. San Diego rose 1.8% in January, followed by D.C. with 0.5% and Los Angeles at 0.1%.” — Brian Luke, Head of Commodities at S&P DJI.

“While modest [pending] sales growth might not stir excitement, it shows slow and steady progress from the lows of late last year. Ongoing job gains are clearly increasing demand along with more inventory.” — Lawrence Yun, NAR’s Chief Economist.

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