Housing MarketMortgage Rates

Have lower mortgage rates already boosted housing demand?

It’s early, but we know where to look first

Did the recent move lower in mortgage rates turn the housing market positive? With mortgage rates moving almost 75 basis points lower from the highs, does the data show that demand has improved? Let’s take a dive in the weekly tracker to see.

Purchase application data

Last year, when mortgage rates fell from 7.37% to 5.99%, we got three good months of positive purchase application data until the first week of February before mortgage rates started to run higher from 6%-8%. We need to focus on the data weekly to see if lower mortgage rates can once again spur purchase applications because we are working from such historically low levels that it doesn’t take much to move the needle. 

So far, we have had back-to-back positive prints, and the year-over-year decline is at the lowest level all year long. However, this is due to extremely easy year-over-year comps. Let’s see how this looks in the critical time from the second week of January to the first week of May 2024. Remember, application data looks out 30-90 days before it hits the sales data. 

Purchase application data was up 3% versus last week, making the year-to-date count 20  positive prints, 23 negative prints, and one flat week.

Mortgage rates and the 10-year yield

The 10-year yield ranged from a high of 4.69% to a low of 4.38% last week, and mortgage rates went from a high of 7.58% to a low of 7.36%. More importantly, the CPI data came in light, and it looks like that might have been the final nail in the coffin for the Federal Reserve in terms of raising rates as the growth rate of inflation has cooled down enough that the market is now pricing in a few rate cuts in 2023. 

Still, the 10-year yield and mortgage rates are higher today than last year, and the inflation growth rate is lower than the peak inflation growth rate in 2022. I talked about how much lower mortgage rates can go from here in this recent podcast. As I have stressed, if the market believes the Fed is done with rate hikes, history says the next big move is lower bond yields and mortgage rates.

Weekly housing inventory data

As someone who believes that housing inventory will grow with higher rates, I was hopeful that when mortgage rates got above 7.25% we would have a few weeks this year of 11,000-17,000 growth, which isn’t a lot. I failed 100% of the time so far. 

We would usually be in a seasonal decline by now, but inventory growth has recently picked up due to higher rates. So, higher rates did their thing, just not big enough for my taste. Mortgage rates have fallen, so this is something to consider next year if they keep falling because that traditionally means flat to lower inventory data, assuming that the economy is still expanding. 

Last year, according to Altos Research, the seasonal peak for housing inventory was Oct. 28. 

  • Weekly inventory change (Nov.10-Nov. 17): Inventory rose from 566,941 to 569,898
  • Same week last year (Nov. 11-Nov. 18): Inventory fell from 572,347 to 569,571 
  • The inventory bottom for 2022 was 240,194
  • The inventory peak for 2023 so far is 569,898
  • For context, active listings for this week in 2015 were 1,120,115

The one positive inventory story for 2023 is that new listing data — while trending at the lowest levels ever in history — didn’t create a brand new low level, no matter how high mortgage rates rose. Even though we saw a noticeable decline week to week, new listings are positive year over year, still trending at the lowest levels ever. I talked about how new listings data is forming a bottom on CNBC recently.

Traditionally, one-third of all homes take price cuts before they sell. When mortgage rates rise, and demand decreases, the percentage of homes with price cuts usually increases. This is why it’s so crazy that this year, even with higher home prices and rates recently, we haven’t been able to catch up to price cuts in 2022 when home prices were falling month to month.

Even as mortgage rates got to 8%, we have consistently been 4% below last year’s levels of price cuts. If mortgage rates fall more over the next six months, this data line will be exciting as we head into Spring 2024. 

  • 2023: 39%
  • 2022: 43%
  • 2021: 28%

The week ahead: Leading Economic Index and existing home sales

This week is a holiday with Thanksgiving, but we have some important economic data coming up: the leading economic index and the existing home sales report. We should see a pick up in the monthly supply of homes with mortgage rates rising as much as it did for this report. People will wait to see how Black Friday sales perform, but Black Friday doesn’t mean the same thing it did 30 years ago. We will see if the bond market and mortgage rates are volatile in a holiday-light trading week.

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