Housing demand is very seasonal, so the fact that our pending contract data is firming up lately just shows that lower mortgage rates have stabilized and firmed up demand recently.
It will likely take mortgage rates to go under 6% and stay there for an extended period to get real sustained demand growth from record-low sales levels.. However, considering the affordability challenges with the housing market, it’s good to see a flip in the housing data without rates getting under 6%.
Weekly pending sales
Below is the Altos Research weekly pending contract data to show real-time demand. Now, this data line is very seasonal, as we can see in the chart below, and we all know that mortgage rates were heading toward 8% a year ago, so we need to be mindful of the positive year-over-year data. However, the weekly pending contract data has firmed up recently, even during the recent seasonal decline period. I will be curious to see if it continues because, due to seasonality factors, it shouldn’t, but for now, here we are.
- 2024: 362,620
- 2023: 340,526
- 2022: 380,823
Purchase application data
Even as mortgage rates ticked up just a smidge this week, the winning streak of consecutive positive purchase apps continues with five weeks of gains. We also had our first positive year-over-year print since 2022. Again, a low bar comp as rates were heading toward 8% last year, and we are at historical low levels.
This is what weekly purchase application data looked like with rising rates starting from the latter part of January:
- 14 negative prints
- 2 flat prints
- 2 positive prints
Even though the purchase application data wasn’t showing much downside on volumes earlier in the year, the weekly data was very negative. Before late January, when rates started to rise, we had about eight weeks of positive trending purchase apps, and then the rising rates zapped the data in a very negative curve.
This is what weekly purchase application data looks like since mortgage rates started to fall in mid-June:
- 11 positive prints
- 5 negative prints
- 5 straight weeks of positive gains
- First positive year-over-year print since 2022
The volume down and up this year hasn’t been much, but we can see a difference in the data now.
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%
Since the housing starts data beat estimates on the day the Fed announced a rate cut and we had a series of better economic data, the 10-year yield has started to rise and has stayed in a small channel between 3.70%-3.80%, meaning mortgage rates have bounced just a tad from the recent lows. Since we are almost toward the forecast lows, I do need to see weaker economic data, better mortgage spreads or a more dovish Fed to take mortgage rates lower than 5.75%.
Mortgage spreads
The mortgage spread story has been positive in 2024, whereas it was negative in 2023. We have seen a big move, which has helped, and we still have some runway left to return to historical norms. This can help get mortgage rates down toward 5.75%. If we took the worst spreads from 2023 and incorporated those today, mortgage rates would be 0.78% higher. At the same time, we are far from average with the spreads, as we are still 0.75% higher today than the low levels of 2022 in the chart below.
Weekly housing inventory data
Two weeks ago was the best week of inventory growth for me in 2024, as we hit my model range without higher mortgage rates; I gave it the chef’s kiss. We couldn’t pull that off this week as inventory growth slowed to 5,768. However, regardless of what happens over the next three months, the best story for me in 2024 was getting the active listings off the levels we saw in 2020-2023.
- Weekly inventory change (Sept. 20-Sept. 27): Inventory rose from 725,249 to 731,017
- The same week last year (Sept. 21-Sept. 28): Inventory rose from 528,797 to 534,746
- The all-time inventory bottom was in 2022 at 240,497
- The yearly inventory peak for 2024 is 731,017
- For some context, active listings for this week in 2015 were 1,188,505
New listings data
Another positive data line this year is that new listings have grown from the lowest levels ever recorded in history in 2023. Since most sellers are buyers, we need this data line to get back to the pre-COVID-19 trend range, which it hasn’t been able to do since the second half of 2022. However, even though I was roughly off by 5,000 on my minimal new listings forecast in 2024 of 80,000 during the seasonal peak, this is still a positive year compared to 2023.
- 2024: 63,022
2023: 56,168 - 2022: 59,780
Price-cut percentage
In an average year, one-third of all homes take a price cut — this is standard housing activity. Rising mortgage rates last year and this year have created a growing level of price cuts, especially with inventory rising. This data line has slowed as rates have fallen. In my 2024 price forecast, I was on the shallow end for price growth as I had real home prices falling in 2024, which meant only 2.3% nominal home price gains in 2024.
A few months ago, on the HousingWire Daily podcast, I discussed that the price-growth data would cool down in the year’s second half. The price-cut percentage data is below 2022 levels and risks an earlier seasonal curve lower than 2022 and 2023. This is with more inventory than both years, surprising some people. However, we can see here that lower rates have been slowing down the price cut data percentage recently.
Here are the price-cut percentages for last week over the previous few years:
- 2024: 39%
- 2023: 38%
- 2022: 42%
The week ahead: Jobs week and Fed speeches
Labor over inflation: We have a ton of labor data coming out with jobs week at hand. Also, the bond market has shown that it doesn’t want to go lower unless it needs to, so how the bond market reacts to the data this week is going to be very interesting! Powell and a few Fed presidents will be talking this week, too, so you add that to jobs and we better get ready to rumble this week!
