Has the lower mortgage interest rate already stimulated the demand for housing?

Has the lower mortgage interest rate already had a positive impact on housing demand figures? Some people are very disappointed with the data so far, so I wanted to take an in-depth look at this week’s tracker to see what lower interest rates have done to these key data lines. Today, let’s look at two of those data lines to see if we can spot a positive trend.

Buy application data

My belief has always been that in order to really grow and sustain the existing home sales market, we need a mortgage rate of less than 6% with a certain term. I focused on this with CNBC early in the year when he was asked this question.

By the end of 2022, mortgage rates fell to 6%, giving us twelve weeks of positive data and one big report on existing home sales. But then rates went up and sales dropped. By the end of 2023, mortgage rates fell, but did not reach 6%, and we only had eight weeks of positive growth. Then mortgage interest rates rose again and sales fell. My firm belief in the interest rate model forced me to say earlier this year that monthly home sales numbers would peak unless interest rates fell.

What about purchasing apps now?

Purchasing apps are very seasonal; I usually weigh these after the second week of January to the first week of May. Normally volumes always drop after May. However, the last two times rates fell, we saw more purchasing app activity in November, closer to what we would see in the seasonal spring months. What about now?

With mortgage rates falling again, some people expected something similar to what we saw towards the end of 2022 and 2023. However, at the moment we only have slightly positive data. Over the past nine weeks, we’ve done that on our own five positive purchase request weeks vs four negatives. Percentage-wise it is cumulative 14% in return for 12% about the four negative weeks. For now, the lower rates have only marginally affected demand.

The recent home sales figures came in just as well, as the first few weeks of June were positive. In reality, nothing significant is happening, but it is still a positive trend compared to earlier this year, when mortgage interest rates went towards 7.5%.

Weekly home inventory data

The best story for housing in 2024 is the growth of the housing stock. We’re a long way from the brutally unhealthy levels of 2022, when we had that only 240,000 homes that are for sale in March of that year. My model for weekly inventory growth is simple: Higher interest rates, if they don’t create mortgage demand, can increase inventory.

As long as rates remain high, especially 7.25% and higher, inventory should grow in between 11,000 and 17,000 per week. This would be an average level for me, which has happened six times so far this year – perfectly in line with that model. We are not broken here 17,000 in the weekly data so far this year. But what about the last three weeks, when we’ve seen lower rates?

Over the past three weeks, inventory growth has been healthy in my view, but I have not been able to meet my weekly growth target even with lower rates. It’s not a problem; it’s still a positive year for inventory growth.

Over the past three weeks, inventory growth has been:

• Last week: 9,024
• Week before: 6,482
• 2 weeks ago: 8,883

We’re getting closer to inventory seasonality, and regardless of what happens in the last few months of 2024, inventory growth is a plus.

Conclusion?

While we haven’t seen a super positive increase in housing demand with lower interest rates, we have seen growth in refinancing. This is something I’ve talked about recently this podcast: It’s a shallow bar to show the growth in the data, but we did find some with lower rates.

For purchase application data, it is critical to keep an eye on whether mortgage rates remain below 7% and continue to decline for the rest of the year. The closer we get to the end. of the seasonal housing period, and if rates remain lower we should see year-over-year growth in purchasing apps, but that’s only due to the all-time low when rates hit 8% last year. We will keep an eye on this, as well as the other variable that will be so important: mortgage spreads.

If we had average spreads, mortgage rates today would be 5.5%, and if 10-year rates fall, we could end up with mortgage rates as low as 5% and then below 5% with average spreads. For now, we’re taking it one week at a time, as we move closer to the start of the Fed’s rate-cutting process and keep a closer eye on the state of the US economy.