Mortgage Rates

Want off this mortgage rate roller coaster? Good luck

Bond market volatility continues despite the Fed trying to talk the market down

Stable, slow and steady are all terms that don’t apply to mortgage rates lately, as the bond market has gone wild the past few weeks. Last week, we saw severe volatility as the Federal Reserve tried to talk the market down by preaching no more rate hikes, but inflation data, low jobless claims and a bad bond market auction created some chaos.

Active housing inventory grew nicely last week, but new listing data is still trending at the lowest levels ever. Purchase application data squeezed out a small weekly gain.

Mortgage rates and the 10-year yield

The bond market has gone so wild lately that we have had eight Fed presidents and Treasury Secretary Janet Yellen try to talk down this last big move in bond yields, which sent mortgage rates spiking to a new 23-year high.

Last week was another intense week: Real yields are high enough now that the Fed can actively talk about stopping rate hikes and try to keep the economy from recession as the core inflation growth rate is heading lower. Bond yields spiked Thursday after the CPI report, solid jobless claims data and a bad bond auction, then headed lower on Friday.  

Mortgage rates went from a recent high of 7.81% to 7.60%, ending the week at 7.66%. Outside of the obvious affordability hit with higher rates, volatile mortgage rates add more uncertainty to the housing market. This isn’t a good trend; it’s been so painful that the National Association of Realtors, Mortgage Banking Association, and the National Association of Home Builders wrote to Fed Chair Jay Powell asking him to clarify the Fed’s rate path and find a way to bring the spreads down.

Right now, I am watching the 10-year yield and the 4.87% level as a short-term top, much like last year when we hit 4.25%. If this top in the bond market stays true, we’ll also see the top in mortgage rates in the short term. The Fed can try to talk the market down all it wants, but If it wanted to change the game, it would just say it is done hiking rates and will stop quantitative tightening — but don’t hold your breath. We typically see wild action at bottoms and short-term tops in the 10-year yield.

Weekly housing inventory data

The story of 2023 on the inventory side has been one of slower growth in active listing and new listings data trending at the lowest levels ever in history. However, as mortgage rates got above 7%, I had anticipated we would see at least a few weeks of active inventory growth between 11,000-17,000. 

Inventory growth hasn’t reached those levels, but there has been some good growth for October as higher rates are slowing the housing market down. Look for the HousingWire Daily podcast on Monday morning, where I explain why higher rates — not lower rates — will create more inventory in an expanding economy. 

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

  • Weekly inventory change (Oct. 6-Oct. 13): Inventory rose from  537,032 to 546,450
  • Same week last year (Oct. 7-Oct. 14): Inventory rose from to 562,249 to 567,452
  • The inventory bottom for 2022 was 240,194
  • The inventory peak for 2023 so far is 546,450
  • For context, active listings for this week in 2015 were 1,177,353

While trending at the lowest levels ever recorded in U.S. history, new listings data remains on an orderly seasonal decline. We saw a slow week-to-week decline last week and a negative year over year, but not by a lot.

Price cuts are common with housing data, as one third of all homes typically have a price cut throughout the year. Last year, the price cuts were trending 4% higher than this year.

Higher mortgage rates can create more price cuts. Last year, the mortgage rate increase was so high and so fast that more and more people had to cut prices to sell their homes. The market is different this year as inventory is still negative year over year. 

The percentage of price cuts for the same week over the last few years:

  • 2021: 29%
  • 2022: 42%
  • 2023: 38%

Purchase application data

Purchase application data was up 1%  last week versus the previous week, making the year-to-date count 18 positive prints, 20 negative prints and one flat week. If we start from Nov. 9, 2022, it’s been 25 positive prints versus 20 negative prints and one flat week. However, the week-to-week data has been weaker once rates passed 7%, and we will see that in the data lines going out in the future. 

The week ahead: Housing and economic reports

This week, we have several key housing and economic data lines to track. The builder’s survey has been getting weaker lately as the builders have resorted to paying more money to get lower mortgage rates for their buyers, so that’s one to watch. We also have housing starts data, which took a big dive last month, and existing home sales, which should break under 4 million, which is very rare post-1996. In addition. we have retail sales and the leading economic index this week, too, so there will be plenty of housing and economic data to move the bond market this week. 


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