The Super Bowl has come and gone, which means one thing: the start of the spring selling season. In many markets across the country, in fact, it appears the spring selling season started early again in 2023. Zonda data is capturing an uptick in demand following a notable pullback in many markets in the second half of 2022. We attribute the rebound to four main things:
- Seasonality. The fact that, historically, the start of a given year is stronger than the end of it.
- Acceptance. Mortgage rates have more than doubled since the beginning of 2022, but rates have stabilized below 7% for the past 13 weeks. This stability is allowing consumers to no longer feel like they are perpetually chasing the market.
- Deals. Given the lower levels of demand, builders have been willing and able to drop prices and/or offer incentives. Consumers that were afraid of buying at the top found those nerves quelled when they finally felt they were getting a deal.
- Pent-up demand. Housing demand was exceptionally strong heading into the spring selling season last year before the affordability shock. Consumers pulled back from the market due to those affordability constraints but also consumer confidence. It appears consumers are finding a bit more certainty today. At least some of the bump in sales to start the year corresponds with the reemergence of buyers who were sitting on the sidelines for months.
There are a few questions that come from the stronger-than-expected start of the year. For one, there’s a question of sustainability. Sales are up from the bottom, but are we in growth mode from here or is the bump in activity more of a head fake?
More important, a rebound in the housing market combined with an exceptionally strong jobs report in January is telling policymakers that there is much more work to do. How will policymakers respond to the seemingly good data? We think restrictive policy is here to stay and will need to be pushed even further to slow growth. Getting inflation under control is currently job No. 1 for the Federal Reserve.
As the housing market progresses through the spring selling season, we wanted to provide a list of the top three things we are paying close attention to for the next few months.
1. 10-Year Treasury Rates
In past research, we have shown the connection between the 10-year Treasury rate and 30-year fixed mortgage rates. The 10-year hit a peak in October 2022 at 4.24% but has since come down to 3.63%.
The lower level of the 10-year Treasury yield has filtered into declining 30-year mortgage rates, moving from the 7% range to the 6% range.
The lower rates have proved to be enough to get some buyers off the sidelines, especially when combined with mortgage rate buydowns. Zonda data shows 62% of builders are willing and able to buy down a 30-year fixed rate mortgage to the mid-4% range to low-5% range.
The 10-year Treasury yield captures investors responding to inflation, the economy, Federal Reserve policy changes, and alternative investment opportunities. We could see big moves in the 10-year in response to stronger than expected, or weaker than expected, economic news. The uncertainty related to rates is not yet behind us.
2. House Prices
There has been some softening in home prices due, in part, to the increased mortgage rates and slower housing demand discussed above.
Zillow’s national typical home value index shows prices essentially flattening out at the national level. Sellers during the second half of last year were increasingly willing to work with buyers to help secure a sale, even if that means lowering the list price.
Further, Zonda data shows many markets across the country are below peak pricing, with parts of the West leading the way (see map below). 51% of builders report that prices are down 5% to 20% from peak.
The direction of where prices go from here will tell us a lot about housing affordability and the supply/demand imbalance. To start the year, the majority of builders reported holding their prices flat, 32% lowered prices, and 12% said they raised prices. We will be tracking the price increase share closely over the next few months.
3. Housing Supply
Resale listings are up 65% to start the year compared with January 2022 and 18% compared with 2021. Total levels, however, are 44% below 2019. We wrote about the factors behind the sellers impasse in a blog in December.
A key thing we are watching in the resale market is the return of sellers that delisted, or took their home off the market, at the end of last year. CoreLogic data found that roughly 8% of sellers at the end of last year delisted their property, hitting the highest level since at least 2018.
Sellers delisted their property for a variety of reasons, including market uncertainty, the home not getting offers at the price they expected, and/or the home not selling as quickly as anticipated. We are watching to see if these sellers decide to hold the home as a rental, turn to remodel instead, or list their home in the next few months to align with the spring selling season.
The lack of resale inventory has made the new-home market more prominent. We are closely tracking quick move-ins (QMIs), or homes that can be moved into within roughly 90 days, and units under construction on the new-home side. Early indications are that total QMI levels are rolling over as consumers take advantage of the aforementioned price cuts and incentives.
