If you are looking to achieve sales growth with a boost, it is essential to have mortgage rates below 6% for an extended period. However, since I am unable to predict when those levels will be reached, I am not currently pursuing that direction until there are significant changes in the labor market or improved spreads. I discussed this topic recently on CNBC. This is something to keep in mind for the future. With annual wage growth, increasing household formations, and a potential fall in mortgage rates, there could be a positive demand trend lasting over 12 weeks. If mortgage rates can remain between 5.75% to 6.25% for a year, it could sustain higher sales levels based on the data observed since late 2022.
Purchase application data
Last week, the purchase application data showed a 5% increase week-over-week and a 10% increase year-over-year. It’s important to note that October had a low base, so interpreting the entire month’s positive year-over-year growth requires some context. Taking into account the entire month of October, which consistently showed positive growth compared to last year, we averaged around 7.4% growth.
Looking at how this data trend has evolved throughout the year, we can see that when mortgage rates were higher earlier in the year (between 6.75% to 7.50%), the purchase application data reflected:
- 14 negative prints
- 2 flat prints
- 2 positive prints
However, since mid-June when mortgage rates started to decline, the purchase applications showed:
- 12 positive prints
- 5 negative prints
- 1 flat print
- 3 consecutive positive year-over-year growth prints
Currently, with mortgage rates on the rise again, the data indicates:
- 2 negative prints
- 1 positive weekly print
This positive trend in demand, coupled with mortgage rates approaching 6%, marks the second time since late 2022 that demand has improved consistently for over 12 weeks. I discussed the recent data variations on the HousingWire Daily podcast last week. It’s not just about demand but also pricing.
Pricing data
Regarding price-cut data, there have been misconceptions from some housing experts misinterpreting rising inventory and price cut percentages, suggesting a significant decline in national home prices this year. However, there hasn’t been a substantial negative pricing trend this year, even as we enter November.
This year, as mortgage rates approached 6%, the price cut percentage data decreased earlier than in previous years like 2022 and 2023. While not dramatic, the pending contact data demonstrates the impact of rate fluctuations on the market, even with increasing housing inventory.
Historically, there have been periods, such as the early to mid-1980s, mid to late 1990s, and from 2000 to 2005, where rising inventory coexisted with increasing sales and prices. Properly interpreting the price cut percentage data is crucial, and as shown below, the recent data indicates a slowdown.
Surprisingly, the weekly new pending price median data has remained stable, even during a typically slow pricing period, especially with increased inventory. This deviation from the trends seen in 2022 and 2023 suggests that my forecast for 2024’s 2.33% home-price growth may be at risk. Consistent mortgage rates around 6% could significantly influence the market trends.
Weekly data lines
In this weekend’s tracker, I will focus on the deviation data, providing a different perspective than usual. Here is a quick overview of the traditional data we typically analyze.
Housing inventory experienced a slight decline for the second consecutive week. Despite this, there has been substantial growth in active listings throughout the year, challenging the notion that inventory cannot increase with higher rates.
Inventory decreased from 736,014 to 735,718.
Additionally, new listings data showed a slight increase this week from 60,066 to 60,819.
The positive trend in 2024 is the growth of inventory. While this was a desired outcome in 2023, it materialized too late to make a significant impact. In contrast, 2024 has seen inventory growth without a surge in new listings data. Comparing this week’s new listings data of 60,819 to the data from previous years highlights the difference in market conditions.
- 2009: 280,400
- 2010: 353,457
- 2011: 352,030
It’s crucial to acknowledge the different economic contexts of those years and refrain from drawing direct comparisons.
10-year yield and mortgage rates
My 2024 forecast included:
- A range for mortgage rates between 7.25% to 5.75%
- A range for the 10-year yield between 4.25% to 3.21%
One key level I have been monitoring is the 4.40% mark for the 10-year yield. Breaking above this level could signify a shift in the downtrend that started on Oct. 16, 2023, when the yield was at 5%. With significant developments expected this week, particularly in the bond market, it’s important to stay informed. For insights into the bond market’s behavior on Jobs Friday, you can refer to my recent article.
Mortgage spreads
Friday saw positive movement in mortgage spreads, preventing a worsening of pricing conditions. The overall improvement in spreads this year has been beneficial for the housing market. Without this improvement, rates could have been higher throughout the year. Although spreads have slightly worsened recently, they remain better than last year.
The week ahead: All bets are off
With the upcoming election and Federal Reserve meetings, this week’s outcomes are unpredictable. I will be featured on the HousingWire Daily podcast three times to provide insights into the unfolding events. The first episode will focus on explaining the developments in the 10-year yield and mortgage rates.
This week, the 4.40% level for bond yields will be critical; breaching this level and sustaining bond selling momentum could pose challenges for the housing market. It’s essential to navigate through the volatile intraday movements near critical technical levels. Wishing everyone good luck for the week ahead.