Last week we were on the verge of breaking a key level in the bond market, which would have sent mortgage rates even higher. We also had a lot of economic, political, and Fed news that could have pushed rates higher. Despite all those negative headlines, we’ve dodged the bullet for now; important levels are managed, and we live to fight another day.
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%
As we approach the end of the year, we can see that my rate forecast for mortgage rates holds for most of 2024. As economic data weakens, prices fall, and as they improve, prices go higher. Last week, we had good economic data, lukewarm inflation data and hawkish statements from Chairman Powell, but we were lucky that the 10-year yield did not break the key level to send mortgage rates higher.
Mortgage spreads
The story of the distribution of mortgages was positive in 2024, and negative in 2023. As spreads get better, we’ve got rates around 6% this year. Without better spreads, mortgage rates would be more than 7.50% today.
Unfortunately, spreads have gotten a little worse with the recent increase in mortgage rates. However, if I take the worst spread from last year, mortgage rates are 0.72% higher today, and if mortgage spreads were to return to normal, you would see mortgage rates down 0.71%—0.81% right now.
For those looking to dive deeper into what to expect with mortgage rates and housing policy under President-elect Trump, check out the latest HousingWire Daily podcast.
Buy app data
When I look at the purchase demand data, I always try to find the range of loan rates that will cause housing demand to grow and find out what rates will cause demand to soften. We are no longer hitting home sales like we did in 2022. However, we only see growth when mortgage rates reach 6%.
Last year, when mortgage rates dropped from 8% to an average of 6%, we saw an increase in demand, but it didn’t surprise us. However, low prices have pushed home sales to grow by a combined 500,000 in the two months earlier this year. So, starting this week, I’m going to see if we can get a regular season run on pre-average app purchases.
This week, shopping apps were up 2% weekly and 1% year-over-year. The shallow bar in year-on-year data from last year’s 8% levels is now officially over.
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 what the purchase requests looked like:
- 12 fine prints
- 5 negative prints
- 1 flat print
- 3 positive positive growth prints year after year
As housing prices rise again, here’s where we are:
- 3 negative prints
- 2 great weekly prints
- 5 straight weeks of good year-over-year data, but the bar is low this time.
Weekly pending sales
Below is Altos weekly pending contract data to show real-time demand. This data line is highly seasonal, as seen in the chart below. Even with higher mortgage rates, this data line still shows steady year-over-year growth. Keep in mind that the second half of 2022 saw the biggest crash in home sales, and last year’s prices rose 8% by the end of the year. Still, it’s good to see this line of data continue to show year-over-year growth.
Weekly housing inventory data
In the past two weeks, housing inventory has dropped slightly more than I expected and so has new listing data. I thought maybe the election held some people back from listing their homes. With that in mind, I was expecting a big snap back in inventory last week, looking for numbers between 4,500-4,800, but it turned out to be less than 1,000.
If you want to know why inventory data looks a little different now (and want to answer your Uncle Dave at Thanksgiving, who only reads the headlines and says it’s 2008 houses over and over), this article is for you.
- Weekly inventory changes (Nov. 8-Nov. 15): Inventory increased from 721,576 to 722,032
- In the same week last year (Nov. 10-Nov. 17): Inventory increased from 566,882 to 569,898
- The all-time inventory low was in 2022 at 240,497
- The highest inventory for 2024 so far is 739,434
- In other context, this week’s active listings in 2015 were 1,135,684
New listing data
I thought the new listings data would show more growth last week than we got, but that didn’t happen; and we are in the fall of the season here. Still, it’s a big gain for the housing market we saw growth in 2024, but the context is important as it’s the second lowest year ever.
- 2024: 51,832
- 2023: 48,610
- 2022: 46,916
Discount percentages
In an average year, one-third of all households reduce prices – this is a common real estate activity. When loan rates increase, the percentage reduction in rates increases. If prices fall and demand rises, this data line can cool, as it has recently.
Here are the last week’s price reduction percentages over the last few years:
- 2024: 38.8%
- 2023: 39%
- 2022: 43%
Next week: Housing data and the Fed’s Austan Goolsbee
The key data for next week is housing data; Builder confidence and early housing data are important to my work on the economic cycle. Housing permits and starts are already at pre-recession levels from the start of COVID-19, and we are working through a backlog of orders. So, this week, I want to see how builders feel about mortgage rates because, according to my economic models, when home builders start losing their jobs, a recession is not far away. This is something I grew up with CNBC recently. I recently discussed what to expect from real estate in 2025 on the Top of Mind podcast with Mike Simonsen.
This week I will also look at what Chicago Fed President Austan Goolsbee has to say; he is probably the most admired of all Fed presidents, even questioning why long-term rates are rising. Stay tuned.
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