Is the bottom in mortgage rates for 2024 finally in sight after a tumultuous year? My forecast for 2024 had a range of mortgage rates between 7.25%-5.75%. To reach the lower end of this range, two key factors needed to align: a softer labor market and improved mortgage spreads. This double impact has indeed occurred.
However, with three months left in the year, could my lowest range forecast be incorrect? It’s possible, and here’s why.
10-year yield and mortgage rates
My 2024 forecast included:
- A range for mortgage rates between 7.25%-5.75%
- A range for the 10-year yield between 4.25%-3.21%
How rates reach the lower end of the forecast range is crucial. Two variables come into play: a softer labor market and improved spreads. Once again, the combination of lower yields and spreads. This isn’t solely about additional Fed rate cuts, as the market has already factored in many rate cuts, but it has yet to account for a potential recession. People may wonder why rates increased after a larger-than-expected Fed rate cut, as illustrated in the chart below. I discussed this in more detail in this HousingWire Daily podcast.
With the 10-year yield at 3.74% as of Friday, there is still some room to reach the very bottom of the 2024 forecast before the year ends. However, achieving this will require the labor and economic data to weaken further. This is the first variable — the second one is the spreads.
Mortgage spreads
The story of mortgage spreads in 2024 has been positive compared to the negative trend in 2023. A significant shift has occurred, aiding in the potential decrease of mortgage rates towards 5.75%. If we were to consider the worst spreads from 2023 today, mortgage rates would be 0.68% higher. Nevertheless, we are still 0.85% higher than the low levels of 2022, as shown in the chart below.
Purchase application data
Purchase applications have shown positive trends in the past weeks, marking a four-week winning streak — the longest of the year. Last week, purchase applications grew by 5% weekly and declined by 0.4% year over year, the smallest decline since 2022. This positive shift in data is significant, especially considering the comparison with last year’s rising mortgage rates. The recent 15 weeks have seen material changes in data.
The weekly purchase application data reflects the impact of rising rates starting from late January:
- 14 negative prints
- 2 flat prints
- 2 positive prints
Prior to the rise in rates in late January, there were about eight weeks of positive trending purchase applications. However, the subsequent increase in rates led to a negative curve in the data.
Since mid-June, when mortgage rates began to fall, the weekly purchase application data has shown:
- 10 positive prints
- 5 negative prints
While the volume fluctuation throughout the year has been limited, there is a noticeable difference in the data now.
Weekly housing inventory data
One of the most positive developments in the housing market this year has been the growth in inventory. While concerns about a housing bubble crash were prevalent online, the focus shifted to the potential escalation of home prices. The current inventory growth, coupled with firming demand and lower mortgage rates, presents an ideal scenario for the housing market in 2024.
Last week, 11,589 houses were added to the effective average inventory model, indicating a favorable balance of supply and demand.
- Weekly inventory change (Sept. 13-Sept. 20): Inventory increased from 713,660 to 725,249
- The same week last year (Sept. 14-Sept. 21): Inventory rose from 519,458 to 528,797
- The lowest inventory point was in 2022 at 240,497
- The peak inventory for 2024 is 725,249
- For comparison, active listings in the same week in 2015 were 1,198,819
New listings data
The growth in new listings data this year is a positive trend compared to the record-low levels recorded in 2023. Since most sellers are also buyers, the normalization of new listings data is crucial for sustainable sales growth. While I slightly missed my forecast of at least 80,000 new listings per week during the seasonal peak months, there was notable growth last week!
- 2024: 70,157
- 2023: 59,194
- 2022: 63,853
Price-cut percentage
In an average year, approximately one-third of all homes receive a price cut, reflecting standard housing market activity. The rise in mortgage rates over the past year has led to an increase in price cuts, particularly with the growing inventory. As rates have fallen, this data line has shown a slowdown. My forecast for price growth in 2024 was conservative, and it would have been too low if not for the earlier rise in mortgage rates that dampened demand.
A few months ago, I discussed on the HousingWire Daily podcast that price growth data would cool down in the second half of the year. The price-cut percentage data is currently below 2022 levels and may indicate an earlier seasonal decline compared to 2022 and 2023, despite higher inventory levels. *It’s worth noting that in the fall of 2023, rates were rising towards 8%, and 2022 experienced a sales crash as well.
The price-cut percentages for last week compared to previous years are as follows:
- 2024: 39.9%
- 2023: 37%
- 2022: 41%
Weekly pending sales
Below is the Altos Research weekly pending contract data, providing real-time insights into demand. While we are witnessing a seasonal decline in the data line, there is some year-over-year growth. Demand has shown signs of improvement recently, likely influenced by lower mortgage rates. Although a direct year-over-year comparison may not be accurate due to last year’s higher rates, the current demand has seen a slight uptick.
- 2024: 360,090
- 2023: 344,409
- 2022: 390,935
The week ahead: Fed speeches, home prices, new home sales, and PCE inflation
This week will feature discussions from three Fed presidents on Monday, potentially impacting the market. Additionally, home price data is expected to show a year-over-year cooldown in prices, aligning with previous forecasts. New home sales data will also be released, with potential revisions to last month’s numbers. The Fed’s preferred inflation index, PCE inflation data, will be monitored, although labor market indicators are currently of greater importance. Keep an eye on jobless claims for further insights.
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