I The Federal Reserve they cut rates by 0.50% on September 18 and mortgage rates and bond yields soared. But, we must remember that mortgage rates have already fallen by about 2% from 2023 without rate cuts, as the bond market remains ahead of the Fed.
Since the Fed’s rate cut, we have also seen key economic data metrics: housing starts, retail sales, industrial production, GDP and labor force data all came in better than expected. Mortgage rates have already bottomed out in my 2024 forecast so the risk of rates moving higher was a legitimate concern. As I noted, if the 10-year yield gets below 3.80% we need to see weak economic data for rates to fall and the opposite happened last week. This explains the rise in loan rates since the Fed’s rate cut.
10-year yields and loan rates
My prediction for 2024 included:
- Loan rates range between 7.25% -5.75%
- 10-year yield range between 4.25%-3.21%
I predict a range of channels with mortgage rates and 10-year yields because we can all follow key economic data and look for key turning points in rates. This is what I call a slow dance with 10 year yields and 30 year mortgage rates.
The strong economic data we’ve seen over the past few weeks underscores why 10-year yields and mortgage rates rose last week. What really stood out was Friday’s jobs report, which showed that the three- and six-month job creation estimates are much closer to my labor force forecast than before.
Mortgage spreads
The story of mortgage spreads was positive in 2024, and negative in 2023. We’ve seen a lot of movement this year, and in fact, if spreads hadn’t improved this year, we’d be talking about a 7% mortgage. prices today. If we take the worst spreads from 2023 and include those of today, the loan rates would be 0.77% currently high. At the same time, we are not far from average in terms of spread, as it still is 0.76% are higher today than the 2022 lows in the chart below.
Buy app data
Mortgage rates rose significantly this week and should break our six-week winning streak of consecutive positive buying gains. Last week, we had 9% year-over-year growth in shopping apps, making it consecutive weeks of positive year-over-year data. We have to remember that last year at this time, mortgage rates were around 8% and it created a very low rate to work with.
This is what the weekly purchase demand data looks like with rising prices starting in the last half of January:
- 14 negative prints
- 2 flat prints
- 2 fine prints
Although the purchase order data did not show a significant drop in volumes at the beginning of the year, the weekly data was not very positive. Before the end of January, when prices started to rise, we had eight weeks of great trending shopping apps. Then what usually happens lately, mortgage rates go up and the demand goes away.
Here’s what weekly mortgage application data looks like as mortgage rates start to drop in mid-June:
- 12 fine prints
- 5 negative prints
- 6 straight weeks of great benefits
- 9% good year-over-year growth last week
The ups and downs in volume this year haven’t been much, but we can see the difference in the data now. 12 weeks of positive data both came with loan rates heading towards 6%. We will see what happens with the apparent increase in prices in the last few weeks.
Weekly pending sales
Below is Altos weekly pending contract data to show real-time demand. Now, this line of data is very seasonal, as we can see in the chart below, and we all know that mortgage rates were around 8% last year, so we need to keep in mind the favorable data from year to year. Weekly data was bolstered by lower mortgage rates. However, the recent increase in mortgage rates should slow down the progress made.
- 2024: 354,816
- 2023: 326,593
- 2022: 358,740
Weekly housing inventory data
The past three weeks have been the best week for asset growth in 2024, as we reached my model range without high mortgage rates: I gave it a chef’s kiss. We haven’t been able to reverse that in the last two weeks and last week, the inventory growth has slowed down significantly 3,273. The seasonality factor is something to keep in mind here, but to me the best real estate story for 2024 is that we get higher active inventory, something we can achieve from 2020-2023.
- Weekly inventory changes (Sept. 27-Oct 4): Inventory increased from 731,017 to 734,290
- In the same week last year (Sept. 28-Oct 5): Inventory increased from 534,746 to 537,032
- The all-time inventory low was in 2022 240,497
- The annual peak value for 2024 is 734,290
- In another context, the active listing for this week in 2015 was 1,169,733
New listing data
New listing data was another great story in 2024, as we needed more sellers! Now, I didn’t reach my minimum goal of 80,000 during the peak months of the season – I was down 5,000 – but I see it as a win because even though 2024 was the second lowest listing data ever, it had a jump from 2023, which was the lowest level ever.
- 2024: 60,655
- 2023: 58,103
- 2022: 58,083
Discount percentages
In an average year, one-third of all households reduce prices – this is a common real estate activity. The increase in mortgage rates last year and this year has led to an increasing rate of discounting, especially with rising assets. When mortgage rates fell recently, the percentage of the amortization went down. The Pending New Media Price Index for our data line just started, something Mike Simonsen will discuss on his Altos podcast on Monday.
A few months ago, on the HousingWire Daily podcast, I discussed that price growth data will cool in the second half of the year. The data for the percentage of price reductions is below the 2022 levels and risks the previous season’s curve below 2022 and 2023. Now we need to see if higher mortgage rates change this data line before we see a seasonal decline in inventories.
Here are the last week’s price reduction percentages over the last few years:
- 2024: 39.5%
- 2023: 38%
- 2022: 42%
Next week: Cooked speeches, bond auctions and inflation week
We’re going to have a lot of Fed presidents speaking this week and it’s very interesting to hear what they have to say, especially after the jobs report. Also, we have a few bond auctions and it’s CPI and PPI inflation week. However, as we all see now, more than ever, it is the labor market that is running the show. I also want to see how the purchase demand data reacts to recent movements in mortgage rates; traditionally, we’ll see a week-to-week drop after the prices go up.
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