It’s been almost two months since mortgage rates went up again, and my first thought was that this would be housing demand. We had a good 18 weeks for purchase applications before mortgage rates started to rise in September. I thought that increase would show the same weakness in app purchases that we saw earlier in the year. However, surprisingly, demand has picked up better than I expected. We’re not as big as we used to be, but we don’t have as much as I thought either. Let’s look at the data.
Buy app data
We’ve had six weeks of rising mortgage rates and I expected the buying apps to be bad. Instead, it’s flat, with three positive prints in purchasing data and three in weekly data.
While mortgage rates are rising at the beginning of the year (between 6.75%-7.50%), this is how the purchase application data looks like:
- 14 negative prints
- 2 flat prints
- 2 fine prints
When mortgage rates started to drop in mid-June, here’s how mortgage applications responded:
- 12 fine prints
- 5 negative prints
- 1 flat print
I was expecting more weakness as rates rise. I’m curious about the next few weeks because, two years ago, we had pre-spring demand with the application data, but that was a drop in prices. Last week we saw 2% week-on-week growth but down 1% year-on-year.
Weekly pending sales
Altos Research’s weekly pending contract data provides insights into real-time demand. This data is usually seasonal, as shown in the chart below. Initially, the data showed strong performance as mortgage rates approached 6%. Even today, pending contract data remains strong despite higher home prices and mortgage rates than last year. This caught my attention and is something I follow closely.
The next time mortgage rates approach 6%, imagine that the demand curve is improving. But let’s be honest here: we’re operating from depressed sales levels.
10-year yield and housing rates
My prediction for 2024 included:
- Loan rates range between 7.25% -5.75%
- 10-year yield range between 4.25%-3.21%
This week was relatively calm for mortgage rates as the 10-year yield continued to hold at a critical level, ranging from 4.40% to 4.50%. Given the inflation data and statements from the The Federal Reservethe last two weeks could be interpreted as hawkish. However, the 10-year yield managed to maintain its position, and the decline seen in the charts as the 10-year yield was at 5% in 2023 is still there. Additionally, I noticed that the Citigroup Economic Surprise Index, which tends to fluctuate in line with the 10-year yield, is also rising significantly in the short term.
Mortgage spreads
The trend of mortgage spreads showed improvement in 2024, in contrast to its negative performance in 2023. As these spreads improve, mortgage rates could approach 6% at various times this year. Despite this improvement in spreads, mortgage rates are currently above 7.50%.
Spreads have worsened slightly since mortgage rates began rising in September, but they remain much better than the crisis highs found in 2023. If spreads were as high as they were then, mortgage rates would be 0.68% higher today. Conversely, if we had average spreads, mortgage rates would be about 0.75% to 0.85% lower today.
Weekly housing inventory data
Last week there was another slight drop in the active list and soon, the holidays will begin. I thought we might see a little pop in availability before Thanksgiving week, but nope. The seasonal decline continues, and it looks like the 739,434 level will be the peak inventory for 2024.
- Weekly inventory changes (Nov. 15-Nov. 22): Inventory decreased from 722,032 to 719,055
- In the same week last year (Nov. 17-Nov. 24): Inventory fell from 569,898 to 565,875
- The all-time inventory low was in 2022 240,497
- 2024 peak inventory so far 739,434
- In another context, the active listing for this week in 2015 was 1,104,310
New listing data
While active inventory hasn’t increased, we’ve seen a nice improvement in new inventory this past week. Still, when all is said and done, 2024 will be the second lowest new year on record. We have never seen pressure sellers on any serious scale YouTube accounts have been pushing for years.
The 2025 goal is to bring new listings back to normal, which means that during peak season, we should get between 80,000 and 110,000 new listings per week. During the housing bubble years, this data line ran between 250,000-400,000 per week for years. Here are last week’s number of new listings over the past few years:
- 2024: 53,220
- 2023: 48,587
- 2022: 45,859
Discount percentages
In an average year, one-third of all homes receive a price reduction, which is typical in the housing market. When home prices rise, the percentage of homes that decrease in value tends to rise. Conversely, this trend can decrease when prices fall and demand rises, more recently when prices fall. However, the prices are high again. As we can see, we are at the same levels today as last year, even with more inventory.
Here are last week’s price reduction percentages compared to previous years:
- 2024: 39.1%
- 2023: 39%
- 2022: 43%
Next week: Home prices, new home sales, bond auctions and inflation data
This week is a holiday week, which means all hands are off the trading desk, so we may see some volatility in the markets, especially as bond auctions take place. Markets will normalize after Thanksgiving, so it’s important to watch the 10-year yield move with some skepticism as mortgage rates may be less volatile than usual this week. the economic cycle and the latest purchasing data for builders has been positive.
We also have the Fed’s PCE inflation data this week, which will be a feature of the next Federal Reserve meeting, although the labor data is more important. Home price data is expected to show a cooling trend in growth compared to the highs at the beginning of the year. Additionally, keep in mind that claims data can be unpredictable during the holiday season, so it’s important to consider this over the next few weeks.
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