Inventory edges slightly higher year over year as rates rise

Inventory rose to 871,063 in mid-August as rates stayed near highs, while pending sales fell year over year and price cuts hit 41.67%. Mid-August inventory increased as demand softened with mortgage rates above 6.64%, though rates remain under 7% due to improved spreads. New listings are in seasonal decline, and pending sales and purchase apps have recently turned slightly negative year over year. AI Summary While it’s been a relatively boring year for housing inventory — even with higher mortgage rates — the movement in the last few weeks and easier comps have pushed inventory a tad higher, as we are at the midpoint of August. The question is: can we eke out a bit more growth before the seasonal decline? Today I will address that, as we are in the sixth month of the Iran conflict and mortgage rates are closer to yearly highs than lows. Housing inventory has had the most boring year post-COVID; not much is going on. Higher rates and weaker demand do create more inventory, as we are seeing now, but the growth is very light. We are closer to normal inventory levels for our data, which is roughly a tad over 1 million single-family homes during seasonal peak periods. So getting growth now takes more work than when we were rising from the record-low levels we saw during COVID. Housing demand tends to soften when mortgage rates are over 6.64%. We have seen this in our data for years, and 2026 has been no different except mortgage rates haven’t broken above 7% so the movement is very small. Because of this, the inventory growth we are seeing now is small, too. However, as the year moves on, it will get easier and easier for the comps to show growth, as last year at this time rates were heading toward 6% and demand picked up. New listings are in their traditional seasonal decline so not too much is happening here as we head toward fall and winter.

Normally, new listings range between 80,000 and 100,000 every week during peak periods. So while we are not back to the levels we were accustomed to from 2013-2019, we have gotten to the lower end of normal levels in 2026. Some context for those who believe the new listings data resembles the housing bubble years: during that time, new listings ranged from 250,000 to 400,000 per week for several years . Here is last week’s new listings data for the past two years: Typically, about one-third of homes see price reductions before they sell, reflecting the housing market’s dynamic nature. Overall, price-cut percentages this year have been lower than last year. Now, as mortgage rates have risen versus last year, I do expect the year-over-year decline to compress and eventually become on par with, or higher than, last year. We are closer to being on par this week than previous weeks. In my 2026 home-price forecast , I called for a national decline of 0.62% for the year. Home-price growth really isn’t going anywhere this year and my forecast of -0.62% might be hard to achieve, as most home price indexes show price growth between 1% and 2%. However, with rates rising again, I might be right in 2026. In the 2026 Housing Wire forecast , I anticipated the following ranges: Last week was inflation week and both inflation reports came in lighter than anticipated. The 10-year yield ended the week slightly higher than it started, but mortgage rates moved lower in a steady, gradual move last week. As I’ve said before, everyone needs to hug a mortgage spread for their role in keeping rates lower than they would be otherwise. The Iran conflict is in month six, which gives bond traders pause on whether inflation can make a meaningful move lower, but oil prices were up only a smidge last week. Things could have gone worse, but they didn’t.

Mortgage spreads once again have saved the day and kept mortgage rates under 7%. Not that long ago, I wrote about why it will be hard to get rates above 7% . For that to happen, the Iran conflict would really need to get worse, sending oil and diesel prices higher. However, spreads can only save the day for so long: If the Fed gets more hawkish and the conflict worsens, bond yields can rise higher. For now, it’s a sub-7 % market. Historically, mortgage spreads have ranged from 1.60% to 1.80%. Last week, spreads were at 1.99%, down from 2.01% the week before. Let’s compare last week’s mortgage rates to where they would have been over the last three years, given the 10-year yield’s current level: Our pending home sales data provides a week-to-week perspective, though holidays and short-term fluctuations can affect results. This weekly pending sales data typically takes 30-60 days to be reflected in the sales data. Now that we have spent some more time above my key level of 6.64%, the slowdown in sales is more apparent. Earlier in the year, when rates were lower, we had clear positive growth; then it slowed to barely higher, and now demand is down slightly year over year. As the year moves on, the comps will make it hard to show growth in home sales all the way up to December. Here are the pending sales for last week over the last two years: Purchase application data, which looks out 30-90 days, has shown softness as mortgage rates have gotten above 6.64%.

⚡ Effects Interpreter