It’s been nearly two months since mortgage rates saw a spike, and I initially expected this to negatively impact housing demand. Prior to the rise in rates in September, we had seen a positive 18-week period with purchase applications. I had anticipated that the increase in rates would lead to a similar decrease in purchase applications as we had seen earlier in the year. However, surprisingly, demand has remained stronger than expected. While we’re not seeing the same level of growth as before, we’re not as negative as I had predicted. Let’s dive into the data.
Purchase application data
Despite six weeks of rising mortgage rates, instead of primarily negative results, we are seeing a mix of positive and negative purchase application data prints week-to-week.
Comparing the purchase application data when rates were higher earlier in the year and when they started falling in mid-June shows interesting trends:
- 14 negative prints vs. 2 flat prints vs. 2 positive prints with higher rates
- 12 positive prints vs. 5 negative prints vs. 1 flat print with falling rates
Despite my expectations of more weakness with rising rates, recent data has been surprising. I’m keeping a close eye on the coming weeks as historically, early spring has seen an increase in demand, but that was when rates were falling. Last week saw a 2% week-to-week growth but was down 1% year over year.
Weekly pending sales
The Altos Research weekly pending contract data provides real-time insights into demand trends. The data, while seasonal, has shown resilience even with higher home prices and mortgage rates compared to last year.
As mortgage rates approach 6%, there is an expectation of improved demand. However, it’s important to note that we are currently working from lower sales levels.
10-year yield and mortgage rates
My 2024 forecast included ranges for mortgage rates and the 10-year yield. Despite recent inflation data and statements from the Federal Reserve, the 10-year yield has held steady, maintaining a downtrend since 2023. Additionally, the Citigroup Economic Surprise Index, which typically correlates with the 10-year yield, is also showing short-term peaks.
Mortgage spreads
In 2024, mortgage spreads have shown improvement compared to the negative performance in 2023. While spreads have slightly worsened with rising rates, they are still better than the peak levels in 2023. Improved spreads have allowed mortgage rates to approach 6% at times this year.
Weekly housing inventory data
Last week saw a slight decline in active listings, signaling the start of the seasonal decline as the holidays approach. It appears that the inventory peak for 2024 has been reached.
- Weekly inventory change (Nov. 15-Nov. 22): Inventory fell from 722,032 to 719,055
- The same week last year (Nov. 17-Nov. 24): Inventory fell from 569,898 to 565,875
- The all-time inventory bottom was in 2022 at 240,497
- The inventory peak for 2024 so far is 739,434
- Active listings for this week in 2015 were 1,104,310
New listings data
While active inventory hasn’t seen a rise, there was an increase in new listings last week. However, 2024 is expected to be the second-lowest year for new listings. The goal for 2025 is to return new listings to normal levels, aiming for 80,000 to 110,000 new listings per week during peak periods.
- 2024: 53,220
- 2023: 48,587
- 2022: 45,859
Price-cut percentage
Typically, one-third of homes experience a price cut in an average year, with rates impacting the percentage of homes reducing prices. Despite increased inventory, the price-cut percentages remain similar to last year.
- 2024: 39.1%
- 2023: 39%
- 2022: 43%
The week ahead: Home prices, new home sales, bond auction and inflation data
This holiday week may see some market volatility due to reduced trading activity, especially with bond auctions taking place. Expect normalization post-Thanksgiving, with a focus on movements in the 10-year yield and potential fluctuations in mortgage rates. Keep an eye on the new home sales data, which reflects recent positive trends for builders.
Additionally, watch for the Fed’s PCE inflation data and consider the impact on the upcoming Federal Reserve meeting. Home-price data is expected to show a cooling trend, and jobless claims data may be unpredictable around holidays.