The holiday season is upon us, and despite a rise in mortgage rates last week, the housing market is showing resilience. Typically, we would expect a slowdown in activity with higher rates, but there seems to be a seasonal boost helping the purchase application data in the past month. Additionally, pending contracts are still showing strong double-digit year-over-year growth. Let’s take a look at this week’s Tracker data to see if this positive trend can continue for the remainder of 2024.
Weekly pending sales
The weekly pending contract data from Altos Research provides valuable insight into real-time housing demand. While we are currently experiencing a seasonal decline in volume, which is typical for this time of year, the recent increase in mortgage rates has not significantly impacted our pending contract data. In fact, we are seeing positive year-over-year growth when compared to 2022 and 2023.
It’s important to note that we are starting from historically low levels, so these small fluctuations should be interpreted with caution. The fact that we are establishing a more stable foundation is a positive sign, as discussed in a recent HousingWire Daily podcast.
Here are the weekly pending sales figures for last week over the past few years:
- 2024: 304,034
- 2023: 275,022
- 2022: 277,102
Purchase application data
The weekly purchase application data showed a 4% decline on a week-to-week basis. While the unadjusted data indicated a 30% increase, this figure is typically disregarded. However, on a year-over-year basis, the data remains positive with a 4% increase. Purchase applications usually precede actual sales data by 30-90 days.
Unlike the very low comparisons from October and early November, the current data reflects a genuine year-over-year growth trend. While it may be unlikely to see another positive year-over-year result next week, purchase applications have been performing better than expected. In recent years, the seasonal housing push has started earlier, in November instead of after the second week of January.
Considering the recent rise in mortgage rates, the weekly data shows:
- 5 positive prints
- 4 negative prints
When mortgage rates were higher earlier in the year (between 6.75%-7.50%), the purchase application data looked like this:
- 14 negative prints
- 2 flat prints
- 2 positive prints
Following the decrease in mortgage rates in mid-June, the purchase applications showed:
- 12 positive prints
- 5 negative prints
- 1 flat print
It will be interesting to see how the data evolves in response to the higher rates this year, as rates do have an impact, but for now, there is a slight year-over-year growth trend.
10-year yield and mortgage rates
My forecast for 2024 included:
- A range for mortgage rates between 7.25%-5.75%
- A range for the 10-year yield between 4.25%-3.21%
Last week, the 10-year yield saw a significant increase, rising from 4.13% to 4.40% in anticipation of the upcoming Federal Reserve meeting. The Atlanta Fed also reported that U.S. economic growth is expected to exceed 3% again. Despite this, there is still a downward trend in bond yields, with current levels testing the upper channel before the Fed meeting, making the upcoming week quite interesting.
While mortgage rates have risen, the increase has not been as drastic as expected, as mortgage spreads have improved. Over the past two years, housing demand has seen improvement when the 10-year yield drops enough to bring mortgage rates close to 6%.
Mortgage spreads
The positive performance of mortgage spreads this year has been significant for the housing market and the economy at large. If spreads had remained as unfavorable as last year, we would likely see fewer housing permits and starts, as well as potential job losses in residential construction in certain regions of the U.S.
Despite the recent increase in the 10-year yield, mortgage rates have fared better this year due to the improved spreads. If we were still dealing with the poor spreads from last year, mortgage rates would be approximately 0.60 percentage points higher today. Conversely, if spreads were back to normal, we could expect mortgage rates to be lower by around 0.73% to 0.83%. Last week’s data exemplifies this: even with rate increases, this year has been more favorable than last year thanks to better spreads.
Jobless claims
This week, we are introducing jobless claims data into the weekly tracker for the first time. This data is crucial because a key factor that could push rates below the forecasted 5.75% threshold is a potential downturn in the labor market. A rise in jobless claims on the four-week moving average towards 323,000 could have significant implications.
Last week, there was a notable increase in the index, attributed to holiday disruptions in labor data. The latest numbers indicate a 17,000 increase in individuals filing for benefits after job separation, reaching 242,000. The four-week moving average also rose by 5,750, reaching 224,250.
Weekly housing inventory data
We are currently witnessing a seasonal decline in housing inventory, which is to be expected. The positive aspect for housing in 2024 is that we have built up a strong buffer with our inventory data, something we were unable to achieve from 2020-2023. The inventory growth we are seeing in 2024 is promising.
- Weekly inventory change (Dec. 6-Dec. 13): Inventory decreased from 690,015 to 682,150
- The same week last year (Dec. 7-Dec. 14): Inventory decreased from 546,424 to 538,767
- The all-time inventory low was in 2022 at 240,497
- The inventory peak for 2024 so far is 739,434
- For context, active listings for this week in 2015 were 1,050,780
New Listings
Last week’s new listing data showed the usual seasonal decline, but we also observed the traditional Thanksgiving rebound that occurs annually. With Thanksgiving falling a week later this year, there were delays in a lot of weekly housing data. While the growth in this data line fell short of my targets for this year, any positive development is welcome. It’s a stark contrast to the very low levels of new listings seen in 2023.
New listings data for last week:
- 2024: 45,284
- 2023: 39,613
- 2022: 34,973
Price-cut percentage
In an average year, about one-third of all homes undergo a price cut, a common occurrence in the housing market. When mortgage rates rise, the percentage of homes reducing their prices tends to increase significantly. Conversely, this trend diminishes when rates drop and demand rises, as seen recently with falling rates.
While I had anticipated more softness in prices in the second half of 2024, our own data suggests otherwise, indicating that my 2024 price forecast of 2.33% may be slightly conservative. The cooling down of price growth in 2024 is another positive development. The improvement in housing demand with mortgage rates nearing 6% in 2024 impacted the price cut percentage data.
Here are the price-cut percentages for last week compared to previous years:
- 2024: 38.1%
- 2023: 38%
- 2022: 41%
The week ahead: It’s Fed week, with tons of other reports too
The upcoming week is packed with events, including the Fed meeting and important economic reports. The language used by the Fed this week will be crucial. While there is an expectation for a 0.25% rate cut, there is also a cautious outlook for 2025 unless economic data necessitates a faster pace.
This week will also see Global PMI reports, bond auctions, the builder survey index, housing starts, existing home sales, retail sales, and more. Given the significant movement in the 10-year yield in the past week, it will be essential to observe how the market responds to the Fed’s announcements and economic reports.
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