According to the National Association of Realtors, the number of homes for sale rose 4.7% in March from February to 1.11 million. However, the number of homes sold fell 4.3% from the prior month. With mortgage rates nearing 7%, inventory and pricing remain a key issue for home buyers.
HousingWire Lead Analyst Logan Mohtashami joins Yahoo Finance to discuss the housing market, mortgage rates, and how the recent numbers impact the market.
Mohtashami lays out one of the top considerations for the housing market: "Pricing is the thing that shocked everybody, but keep it simple. We are near record lows in inventory, and home sales aren't crashing anymore. 2022 was very abnormal. We had the biggest home sale crash ever recorded in history, and then that kind of stopped after November of 2022. It's basically an equilibrium fight right now. The higher rates go, the weakness in pricing can continue. If rates fall back down with inventory this low, pricing gets better."
- Look at, when you take a look at the fact that we did drop 4.3% here in this latest reading, that comes after that 9 and 1/2 percent jump that we saw back in February. What does that tell us just about the dynamics at play right now in the housing market, and the fact that these low inventory levels are likely going to be a factor, a real challenge here for the market going forward?
LOGAN MOHTASHAMI: Well, to me it's more about mortgage rates. We have a similar marketplace as we did last year when mortgage rates fell toward the end of 2022 and early 2023. We saw a boost in demand, and then rates started to go up and sales fell for the rest of the year. So we're seeing similar action this year so far as rates have picked up.
But I would say, one thing different about this year than last year is that we actually do have a little bit more sellers. New listings data while it's not spectacular has been growing year over year. So there is a potential to have more sales this year if mortgage rates fall. So to me it's more about a mortgage rate story than the low active listings.
- What is going to push down those mortgage rates then? Particularly if we do see that we continue to be in a higher for longer environment.
LOGAN MOHTASHAMI: I haven't been a Fed pivot person since 2022, and until jobless claims start to rise noticeably and the Fed feels the pressure of their dual mandate, we can stay elevated for a longer period. So where jobless claims goes, that would be the material impact to where mortgage rates would fall toward. And so far today, jobless claims are still very historically low.
- When it comes, just taking a step back here, how unusual is this dynamic right now that's playing out within the housing market?
LOGAN MOHTASHAMI: Well, we're at record all time lows in inventory, and we have unbelievably strong homeowner balance sheets. So you have to ask yourself, what actually pushes the housing market to get an accelerated inventory? And to me, that would actually probably be a job loss recession at that point. A lot of, almost everybody has a 30-year fixed mortgage that's doing very well on their monthly payments. And also, over 40% of homes in America don't have a mortgage.
So we can stay in this very low level of sales until mortgage rates get down towards 6% and stay there. That's the key. We've seen demand grow when rates fall, we just never been able to keep rates low enough long enough. And I'm not talking about 3%, or 4%, or 5%, but getting down to 6%. You could hold these sales gains. And what we're seeing right now is what we saw last year. Rates went down, sales boosted up for one or two months, and now sales are slowly trickling lower. And that should be the case as long as mortgage rates keep on heading higher.
- So then, Logan, what does that then tell us about pricing?
LOGAN MOHTASHAMI: Now pricing, of course, is the thing that shocked everybody, but keep it simple. We are near record lows in inventory, and home sales aren't crashing anymore. 2022 was very abnormal. We had the biggest home sale crash ever recorded in history, and then that stopped after November of 2022. So it's basically an equilibrium fight right now. The higher rates go, the weakness in pricing can continue. If rates fall back down with inventory this low, pricing gets better.
So it's a tug of war between rates and inventory. But unlike last year, inventory is growing year over year on the active side, and new listings side, so that will put pricing pressure, especially in areas, fighting levels. And as long as demand stays weak, price growth should cool down noticeably as the year goes on. But again, if rates fall, then that variable changes.
- Well, there's been this, this points to this broader question, of whether or not higher interest rates are low key inflationary, because they're keeping people locked in to their houses who have lower mortgage rates, and that lack of home buying is giving people more capital to spend elsewhere who aren't locked in to paying a monthly payment for their mortgages. How are you seeing that dynamic play out, and what would potentially change that dynamic?
LOGAN MOHTASHAMI: To me it's, when we think about inflation, whether CPI or PC inflation, it's really rents. And one of the detrimental things about higher rates right now is that permits for building apartments are at Great Recession lows or are heading toward the Great Recession lows, we're at the COVID-19 lows. So the housing market, 2/3 of it is already in a recession. Single family permits are holding up well. But if you keep rates high enough long enough, the future production of homes will be a problem.
So we're getting a lot of apartments that are coming on to the marketplace. We have a lot of homes under construction-- that's beneficial to fight inflation. But two years down the line, we're just, we just can't revamp things fast enough. So for now we're going to get more supply on the rental side, which really impacts CPI inflation. But after that, I'm not looking for any kind of apartment boom anymore, that sector has already busted.