A data-driven look at Q1'24 homebuyer demand

Let’s take a deep-dive look at current homebuyer demand, shall we?

And let's start with buyer SENTIMENT, an indicator of future demand.

Nationally, February homebuyer sentiment ticked up 4 percentage points from January according to Fannie Mae’s Monthly Housing Survey. The net share of consumers who say it’s a good time to buy is a net -62%; that is, 81% say it’s a bad time to buy and 19% say it’s a good time to buy.?

Other than the second half of 2023, buyer sentiment is lower than at any point since the GFC, including the highly depressed mood during the 2022 rate-hike cycle.?

So does that jibe with homebuyer desire, as measured by showings?

It does. Showings this January (we don’t yet have February numbers) were down 8.6% compared to the same time last year, for intuitive reasons…mortgage rates in January 2023 had fallen into the mid 6’s (rather than the low 7’s they’re at now), leading to higher buyer demand and thus showings numbers.

Note: The ShowingTime Showing index tracks the average number of buyer showings on active residential properties. In other words, it’s telling you about demand per unit of available supply, the latter of which is very low (although inventory numbers are growing year-over-year).?

QUICK SIDE NOTE: my sons and I are hosting a half-day Private Lending Summit on April 5th, 2024. It’ll be on Zoom so it’s totally free, but of course there are limited spots due the software’s cap on attendees. If you’re interested just CLICK HERE TO REGISTER FOR THE FREE SUMMIT and we’ll put you on the list.

Getting back to showings...showing numbers decreased in 3 of the 4 major regions YOY, and not just a little…

The South was the only region where showings are up year-over-year — albeit just 1% — which is interesting given the increases in inventory we’re seeing there (we’ll get to that in a future article).

If showings are up month-over-month, but so is inventory, that can only mean that there are a lot of new listings coming online.?

According to SentriLock, the tech-enabled lockbox company, “showings per card” are down 8% year-over-year.

The showings-per-card metric is a gauge of buyer interest per listed property; it shows you the average number of times a single property is shown by an individual real estate agent (with his/her SentriLock card).

The trend of the blue line looks like things are improving, but they’re really not; the -8% year-over-year number for January is on top of negative growth between January 2022-2023.

But, like so many metrics, it’s important not to just accept the “showings per card” number at face value.

In absolute terms, showings-per-card has been trending down for nearly a decade, and has really slid in the last few years. It currently sits at just 2.4 showings per card.?

Why? Well, it was especially low in January because January is part of the slow season for home sales. But it’s also a consequence of…

• Higher Interest Rates: The most obvious factor. If it’s harder for buyers to qualify for a mortgage, naturally there are fewer showings. BUT… that wouldn’t explain why this metric was trending down in 2021, would it? Rates were in the 3’s back then.

• Higher Prices: Duh. If properties are more expensive, it reduces the pool of buyers with both the inclination AND the cash to afford them. That’s affordability 101.

• Lower Inventory: This is the sneaky, less intuitive one. Less for-sale supply leads to more competition, so buyers don't screw around with multiple viewings before they make an offer. So the demand is still there, but just looking at the number in insolation makes it look like demand is down because buyers are forced to decide faster.?

As we know, purchase money mortgage applications are a leading indicator of demand.

The MBA purchase mortgage index shows a similar demand picture — overall demand for mortgages is as low as it’s been in 30 years.?

Think about that. The internet was barely a thing the last time so few people were applying for mortgages. That’s sobering.?

But if we zoom in on the mortgage application data, we see something interesting about mortgage demand…

Purchase apps hit their low point last year in October as mortgage rates crested 8%, then started rising again in November. They then hit a new peak in late January 2024 when mortgage rates had fallen to ~6.6%.?

Now, 5 weeks later, mortgage rates are only ~30 bps higher…but applications are just as bad as they were when rates were 140 bps higher. This, by the way, raises an interesting point about interest rates and demand that I’ll get to in a future email.?

Mortgage apps are of course a leading indicator of showings, which tend to be a leading indicator of pending sales. And on the subject of pending sales…

Weekly total pending sales are actually up 2% year-over-year in February, even while mortgage apps are down. How can that be?

If fewer people are applying for mortgages now than last year, yet more homes are going under contract, the only real explanation is that more new listings are coming online. More new listings mean that buyers have more selection and less competition, so you can have greater sales volume even with lower relative demand from buyers.?

Here’s the take-home message from everything above: across all the major metrics, buyer demand is down or flat compared to this time last year, and it’s unequivocally down relative to supply. Keep an eye out for my article in the coming days on exactly that — inventory.??

P.S. If you’re looking for more research AND actionable strategies that actually make money in this market, my sons and I are hosting a half-day Private Lending Summit on April 5th, 2024. It’ll be on Zoom so it won’t cost much (if anything), but of course there are limited spots due the software’s cap on attendees. If you’re interested just CLICK HERE TO REGISTER and we’ll put you on the list.