Have higher mortgage rates already reversed housing demand?

The Federal Reserve Interest rates were cut by 0.50% on September 18 and mortgage rates and bond yields rose. But we shouldn’t forget that mortgage rates are already down nearly 2% from the 2023 highs without rate cuts because the bond market is always ahead of the Fed.

Since the Fed’s rate cut, we’ve also seen significant economic data beat expectations, with housing starts, retail sales, industrial production, GDP, and employment data all coming in better than expected. Mortgage rates had already reached the bottom of my 2024 forecast, so the risk of rates rising was a legitimate concern. As I noted, once 10-year yields fall below 3.80%, we need to see weaker economic data before rates can fall. Last week the opposite happened. This explains the rise in mortgage rates since the Fed cut rates.

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%

I predict channel ranges with mortgage rates and 10-year rates because we can all track the economic data that matters and look for crucial inflection points with rates. This is what I call the slow dance with the 10-year rate and the 30-year mortgage rate.

The strong economic data we’ve seen in recent weeks underlines why 10-year yields and mortgage rates rose last week. The real kicker was Friday’s jobs report, which showed that the three- and six-month averages for job creation are closer to my labor forecast than before.

Mortgage spreads

The mortgage spread story was positive in 2024, while it was negative in 2023. We have already seen a big move this year, and in real terms, if spreads had not improved this year, we would be talking about 7% mortgage interest deductibility. rates today. If we took the worst spreads of 2023 and included them today, mortgage rates would be the same 0.77% higher now. At the same time, we are far from average in terms of spreads, as we still are 0.76% today higher than the 2022 lows in the chart below.

Buy application data

Mortgage rates have risen noticeably this week and should break our winning streak of six consecutive weeks of consecutive positive purchasing app gains. Last week we had 9% year-over-year growth in purchasing apps, making it weeks of positive year-over-year data. We have to remember that mortgage rates were heading towards 8% this time last year and that created a very low interest rate to work with.

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 the end of January, when rates started to rise, we had about eight weeks of positive trend buying apps. What tends to happen lately: mortgage interest rates go up and demand decreases.

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

• 12 positive prints
• 5 negative prints
• 6 consecutive weeks of positive gains
• 9% positive year-over-year growth last week

Volume didn’t drop or rise much this year, but we can see a difference in the data now. The twelve weeks of positive figures were both accompanied by mortgage interest rates approaching 6%. We’ll see what happens with the noticeable increase in interest rates in recent weeks.

Weekly ongoing sales

Below you will find the Altos 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. Weekly data has improved thanks to lower mortgage rates. However, the recent rise in mortgage rates should slow the progress made.

• 2024: 354,816
• 2023: 326,593
• 2022: 358,740

Weekly home inventory data

Three weeks ago 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. Two weeks ago we couldn’t do that and last week inventory growth slowed 3,273. The seasonality factor is something we need to take into account here, but for me the best housing story of 2024 was that we got higher active inventory, something we couldn’t achieve between 2020 and 2023.

• Weekly Inventory Change (September 27 – October 4): Inventory increased from 731,017 Unpleasant 734,290
• Same week last year (September 28 – October 5): Stock rose from 534,746 Unpleasant 537,032
• The lowest inventory level of all time was in 2022 240,497
• The annual inventory peak for 2024 is 734,290
• For some context, the active listings for this week in 2015 were 1,169,733

New advertising data

New advertising data was another positive story in 2024 as we needed more sellers! Now, I didn’t hit my minimum goal of 80,000 during the peak season months – I was off by 5,000 – but I’m considering it a win because even though 2024 was the second lowest year ever for new listings, it did have a rebound from 2023 , the lowest level ever.

• 2024: 60,655
• 2023: 58,103
• 2022: 58,083

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. When mortgage rates fell recently, the rate of markdowns cooled. Our data line’s Pending New Median Price Index recently took off, something Mike Simonsen will discuss at his Altos podcast Monday.

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 price cut rate data is below 2022 levels and risks an earlier seasonal curve lower than those in 2022 and 2023. Now we need to see if higher mortgage rates change this data line before we see the seasonal downtrend in inventories.

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

• 2024: 39.5%
• 2023: 38%
• 2022: 42%

Upcoming week: Fed speeches, bond auctions and inflation week

There will be a lot of Fed presidents speaking this week and it will be increasingly interesting to hear what they say, especially after the jobs report. We also have a few bond auctions and it’s CPI and PPI inflation week. But as we can all see now, more than ever it is the labor market that is in charge. I also want to see how purchase application data responds to recent mortgage rate trends; Traditionally we will see a decline week over week after interest rates move higher.