Mortgage Rates Dodge A Bullet — For Now

Last week we were at risk of breaking a key level in the bond market, which could have sent mortgage rates much higher. We also had a lot of economic, political and Fed news that could have pushed rates up. Despite all those negative headlines, we dodged a bullet for now; the key levels held and we live to fight another day.

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%

As we approach the end of the year, we can see that my forecast range for mortgage rates has held for most of 2024. As economic data gets weaker, rates fall, and as they improve, rates go higher. Last week, we had good economic data, slightly hotter inflation data and hawkish statements from Chairmen Powell, but we got lucky as the 10-year yield didn’t break a key level to send mortgage rates higher.

Mortgage spreads

The mortgage spread story has been positive in 2024, whereas it was negative in 2023. With the spreads getting better, we got near 6% rates this year. Without better spreads, mortgage rates would be above 7.50% today.

Unfortunately, the spreads have worsened slightly with the recent spike in mortgage rates. Still, if I took the worst spreads from last year, mortgage rates would be 0.72 % higher today, whereas if mortgage spreads were back to normal, you would see mortgage rates lower by 0.71%—0.81% right now.

For those who want a deeper dive on what to expect on mortgage rates and housing policy under President-elect Trump, check out this recent HousingWire Daily podcast.

Purchase application data

When looking at purchase application data, I always try to find the mortgage rate range that can make housing demand grow and figure out which levels will make demand softer. We aren’t crashing in home sales anymore like we did in 2022. However, we only see growth when mortgage rates head toward 6%.

Last year, when mortgage rates fell from 8% to the mid-6% level we saw demand pick up, but it wasn’t anything spectacular. However, lower rates did push home sales to grow by a combined 500,000 in two months earlier this year. So, starting this week, I will see if we can get a traditional seasonal run in purchase apps earlier than average.

This week, purchase apps were up 2% weekly and 1% year over year. The shallow bar in year-over-year data from rates headed toward 8% last year is now officially over.

When mortgage rates were running higher earlier in the year (between 6.75%-7.50%), this is what the purchase application data looked like:

• 14 negative prints
• 2 flat prints
• 2 positive prints

When mortgage rates started falling in mid-June, here’s what purchase applications looked like:

• 12 positive prints 
• 5 negative prints
• 1 flat print
• 3 straight positive year-over-year growth prints

With mortgage rates up again, here is where we are:

• 3 negative prints
• 2 positive weekly prints
• 5 straight weeks of positive year-over-year data, but the bar is low for this. 

Weekly pending sales

Below is the Altos Research weekly pending contract data to show real-time demand. This data line is very seasonal, as seen in the chart below. Even with elevated mortgage rates, this data line still shows steady year-over-year growth. Remember that the second half of 2022 had the biggest crash in home sales ever and last year rates headed toward 8% late in the year. Even so, it’s nice to see this data line continue to show growth year over year.

Weekly housing inventory data

Two weeks ago, housing inventory fell a bit more than I anticipated and so did the new listings data. I assumed that maybe the election held some people back from listing their homes. With that assumption, I anticipated a bigger 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 housing 2008 all over again) this article is for you.

• Weekly inventory change (Nov. 8-Nov. 15): Inventory rose from 721,576 to 722,032
• The same week last year (Nov. 10-Nov. 17): Inventory rose from 566,882 to 569,898
• The all-time inventory bottom was in 2022 at 240,497
• The inventory peak for 2024 so far is 739,434
• For some context, active listings for this week in 2015 were 1,135,684

New listings data

I thought new listings data would show more growth last week than we got, but that didn’t happen either; we are also in the seasonal decline here. Still, it is a big positive for the housing market that we’ve seen growth in 2024, but context is critical since it’s the second-lowest year ever. 

• 2024: 51,832
• 2023: 48,610
• 2022: 46,916

Price-cut percentage

In an average year, one-third of all homes take a price cut — this is standard housing activity. When mortgage rates rise, the price-cut percentage grows. When rates go lower and demand picks up, this data line can cool down, as it has recently. 

Here are the price-cut percentages for last week over the previous few years:

• 2024: 38.8%
• 2023: 39%
• 2022: 43%

The week ahead: Housing data and the Fed’s Austan Goolsbee

The critical data for next week is the housing data; the builder’s confidence and housing starts data are essential to my economic cycle work. Housing permits and starts are already at early COVID-19 recession levels and we are working through the backlog of orders. So, this week, I want to see how the builders feel about higher mortgage rates because, according to my economic models, when residential construction workers start losing their jobs, the recession isn’t far away. This is something I bought up on CNBC recently. I also recently discussed what to expect for housing in 2025 on the Top of Mind podcast with Mike Simonsen.

This week I will also be watching what Chicago Fed President Austan Goolsbee has to say; he is probably the most dovish of all the Fed presidents, even questioning why long-term rates are rising. Stay tuned.