Demand for housing is increasing due to lower mortgage interest rates

Housing demand is highly seasonal, so the fact that our current contract data has been strengthening lately just shows that lower mortgage rates have stabilized lately and reinforced rising demand.

Mortgage rates will likely need to fall below 6% and stay there for quite some time before there is real sustained growth in demand from record low sales levels. However, given the affordability issues in the housing market, it is good to see a turnaround. the housing data without the rates falling below 6%.

Weekly ongoing sales

Below you will find the Alto’s research weekly ongoing contract data to reflect real-time demand. This data line is very seasonal, as we can see in the chart below, and we all know that mortgage rates were heading towards 8% a year ago, so we have to take into account the positive year-over-year figures. However, weekly data on current contracts has improved recently, even during the recent seasonal downturn. I’m curious to see if this will continue as this shouldn’t happen due to seasonal factors, but for now we are here.

• 2024: 362,620
• 2023: 340,526
• 2022: 380,823

Buy application data

Even as mortgage rates rose only slightly this week, the winning streak of consecutive positive purchasing apps continues with five weeks of gains. We also had our first positive year-over-year print since 2022. Another low bar, as rates headed towards 8% last year and we are at an all-time low.

This is what the weekly purchase data looked like, with interest rates rising from the end of January:

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

While purchase request data earlier this year did not show much negative impact on volumes, the weekly data was very negative. Before late January, when interest rates started to rise, we had positive trend buying apps for about eight weeks, after which rising interest rates pushed the data into a very negative curve.

Here’s what the weekly purchase data has looked like since mortgage rates started falling in mid-June:

• 11 positive prints
• 5 negative prints
• 5 consecutive weeks of positive gains
• First positive year-on-year print since 2022

Volume didn’t drop or rise much this year, but we can see a difference in the data now.

10-year interest rate and mortgage interest rate

My prediction for 2024 included:

• A mortgage interest rate range between 7.25%-5.75%
• A bandwidth for the ten-year interest rate between 4.25% and 3.21%

Since the housing market start data exceeded expectations on the day the Fed announced a rate cut and we had a set of better economic data, the 10-year yield has started to rise and is in a small channel between 3.70% and 3.70% 80% remained. Mortgage rates are up just slightly from recent lows. Since we are close to the forecast lows, I need weaker economic data, better mortgage spreads or a more dovish Fed to bring mortgage rates below 5.75%.

Mortgage spreads

The mortgage spread story was positive in 2024, while it was negative in 2023. We’ve seen a big step, which has helped, and we still have a runway to get back to historic standards. This can contribute to the mortgage interest rate dropping to 5.75%. If we took the worst spreads of 2023 and included them today, mortgage rates would be the same 0.78% higher. At the same time, we are far from average in terms of spreads, as we still are 0.75% today higher than the 2022 lows in the chart below.

Weekly home inventory data

Two weeks ago for me was the best week of stock growth in 2024, when we reached my model range without higher mortgage rates; I gave it the chef’s kiss. We couldn’t get that done this week as inventory growth slowed 5,768. But no matter what happens over the next three months, the best story for me in 2024 was getting active listings to the levels we saw in 2020-2023.

• Weekly Inventory Change (September 20 – September 27): Inventory increased from 725,249 Unpleasant 731,017
• Same week last year (September 21 – September 28): Stock rose from 528,797 Unpleasant 534,746
• The lowest inventory level of all time was in 2022 240,497
• The annual inventory peak for 2024 is 731,017
• For some context, the active listings for this week in 2015 were 1,188,505

New advertising data

Another positive data line this year is that the number of new listings in 2023 has grown from all-time lows in history. Since most sellers are buyers, we need this data line to return to the pre-COVID-19 trend range. I haven’t been able to do that since the second half of 2022. While I had about 5,000 less than my 2024 minimum new ad forecast 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 reduction percentage

In an average year, a third of all homes are reduced in price; this is the standard home activity. Rising mortgage rates last year and this year have led to increasing levels of price cuts, mainly as inventories have risen. This date line has been delayed as rates have fallen. In my 2024 price forecast I was on the shallow side in terms of price growth, as real house prices fell in 2024, which meant only a nominal house price increase of 2.3% in 2024.

A few months ago I discussed on the HousingWire Daily podcast that price growth rates would cool off in the second half of the year. The markdown rate data is below 2022 levels and risks an earlier seasonal curve lower than 2022 and 2023. This is with more inventory than both years, which may surprise some people. However, we can see here that lower rates have slowed the percentage of price reductions lately.

Here are last week’s price reduction percentages compared to recent years:

• 2024: 39%
• 2023: 38%
• 2022: 42%

Next week: Jobs week and Fed speeches

Labor Over Inflation: There’s a lot of labor data coming out with Jobs Week just around the corner. Moreover, the bond market has shown that it does not want to go lower unless necessary. So how the bond market will react to the figures this week will be very interesting! Powell and a few Fed presidents will also be talking this week, so when you add that to the jobs, we better get ready to rumble this week!