Have we seen a drop in 2024 mortgage rates after the roller coaster ride so far this year? My forecast for 2024 had a mortgage rate 7.25% -5.75%. To get to the bottom end of this list, we needed to see two things: the labor market is softening and the amount of mortgage loans is improving. This is a double whammy effect, and that’s what happened.
Well, it’s still September, and we have three months to go! Could my lowest grade prediction be wrong? Well, here’s how and why.
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%
How the values arrive at the lower range of the forecast is important. There are two variables: labor data is getting softer the main one and the second is the spread is getting better. Also, a double whammy for lower yields and spreads. This is not about more Fed rate cuts, because the market has priced in a lot of Fed rate cuts already, but they haven’t paid the price for the recession so far. People are wondering why rates are rising after the Fed’s larger-than-expected rate cut, as shown in the chart below. I talked about this on the HousingWire Daily podcast.
With the 10-year yield at 3.74% as of Friday, we have some room left to hit the bottom of the 2024 forecast before the year is out. However, this would require labor and economic data to be very weak. That’s the first variable – the second is the spread.
Mortgage spreads
The story of the distribution of mortgages was positive in 2024, and negative in 2023. We have seen a great movement, which has helped us, and we still have some way to go to return to historical norms. This can help lower mortgage rates to 5.75%. If we take the worst spreads from 2023 and include those of today, the loan rates would be 0.68% more. At the same time, we are not far from average in terms of spread, as it still is 0.85% are higher today than the 2022 lows in the chart below.
Buy app data
Purchase orders had another good week, making it four consecutive winning weeks – the longest of the year. Last week, shopping apps grew 5% weekly and decreased 0.4% year-over-year. The slight year-over-year decline is the smallest decline since 2022. However, keep in mind that last year at this time, mortgage rates were approaching 8%, so annual comps will be easy to beat. That said, we’ve had a significant change in data over the past 15 weeks.
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
As you can see, this was shaping up to be a very poor year for weekly app data. Before the end of January when prices started to rise, we had 8 weeks of positive trending buy apps, then the rising prices pushed the data into a negative curve.
Here’s what weekly mortgage application data looks like as mortgage rates start to drop in mid-June:
- 10 fine prints
- 5 negative prints
The ups and downs in volume this year haven’t been much, but we can clearly see the difference in the data now.
Weekly housing inventory data
The best story for me in terms of housing this year has been the property boom. Unlike some crazy people on the internet, I have never worried about the housing bubble bursting, but since the summer of 2020 I have been very concerned about housing prices rising out of control. With the growth in assets that we see and want to strengthen, this is the best we could have hoped for in 2024.
Last week, we added 11,589 houses in the average active inventory model, but with better demand and lower levels of borrowing. This is a great place for housing.
- Weekly inventory changes (Sept. 13-Sept. 20): Inventory increased from 713,660 to 725,249
- In the same week last year (Sept. 14-Sept. 21): Inventory increased from 519,458 to 528,797
- The all-time inventory low was in 2022 240,497
- The annual peak value for 2024 is 725,249
- In another context, the active listing for this week in 2015 was 1,198,819
New listing data
Another positive line of data this year is that new inventory data increased from the lowest levels ever recorded in history in 2023. Since most sellers are buyers, this data must return to normal before seeing real, long-term sales growth. However, I missed my 2024 forecast of at least 80,000 new listings per week this year during peak season months by about 5,000. Good thing we saw a good increase last week!
- 2024: 70,157
- 2023: 59,194
- 2022: 63,853
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. This data line has decreased as prices have decreased. In my price forecast for 2024, I was on the shallow end of price growth and would have been much lower if mortgage rates had not risen earlier in the year to reduce the demand for mortgages.
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. This has more vocabulary than both years, too. *But remember, we had rising rates in the fall of 2023, reaching 8%, and in 2022 there was a decline in sales.
Here are the last week’s price reduction percentages over the last few years:
- 2024: 39.3%
- 2023: 37%
- 2022: 41%
Weekly pending sales
Below is weekly contract data for Altos pending to reflect real-time demand. We see a seasonal decline in the data line but we have some growth year over year. Demand has recently been strengthening slightly with lower mortgage rates. I won’t compare it year-on-year because last year’s rates were about 8% right now, but demand has increased a bit.
- 2024: 360,090
- 2023: 344,409
- 2022: 390,935
Next week: Fed statements, home prices, new home sales and PCE inflation
This week there will be three Fed presidents speaking on Monday, so watch the market’s reaction. We also have home price data, which should show the year-over-year decline in prices, which I’ve been talking about for months. Remember, Case-Shiller and others measure our work in months. New home sales are coming out, and this week, I expect a downward revision to the monster beat we had last month. We also have the Fed’s favorite Inflation indicator, PCE inflation data, but as we all know by now, labor is more important than inflation, so keep an eye out for idle claims.
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