How have two hurricanes affected housing inventory?

Here are last week’s new offers from past years:

• 2024: 62,876
• 2023: 57,229
• 2022: 59,458

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 reductions, especially as inventories rise. When mortgage rates fell recently, the rate of markdown cooled a bit; Now that mortgage rates are rising again, we’ll see how this affects this data line. Seasonality will soon kick in for this date line, which traditionally falls late in the year. As you can see in the chart below, when our active inventory levels were 240,000, the percentage of markdowns was historically low and not healthy.

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. However, I’m not sure that the slowdown in price growth will match my forecast for 2024, which will see prices rise 2.33% this year. It looks like I’m too low.

Price reduction rates are below 2022 levels and risk an earlier seasonal curve lower than 2022 and 2023. However, mortgage rates have risen recently, so we’ll see if that changes the data in a meaningful way over the last ten weeks of the year will change.

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

• 2024: 39.62%
• 2023: 38%
• 2022: 42%

10-year interest rate and mortgage interest rate

My prediction for 2024 included:

• A range for mortgage rates between 7.25%-5.75%
• A range for the 10-year interest rate between 4.25%-3.21%

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

I have a crucial line in the sand of about 3.80% on the 10-year rate, and for 2024, with better mortgage diversification, that equates to a mortgage rate of about 6.25%. For mortgage rates to fall below, stay below or go much lower, weaker economic data are needed. We recently had a set of economic and labor data that exceeded expectations. This podcast goes into more detail and explains what happened the day the Fed cut rates and Friday after the job crisis.

We keep all the data, but the key is always labor over inflation. If the jobs data came in as a big miss, we would have a different conversation today, but that didn’t happen.

Mortgage spreads

The mortgage spread story was positive in 2024, while it was negative in 2023. We have already seen a big step this year; Mortgage rates would be much higher today if spreads had not improved. So as rough as some in the mortgage community are feeling, it could have been worse. We are not yet back to normal in terms of spreads, but it is a good sign that spreads started to improve before the Fed cut rates, and over time there is room to fall further.

Buy application data

Mortgage interest rates rose again last week. While that increase didn’t have too much of an impact on last week’s numbers, as the increase occurred two Fridays ago, we should see some of the impact of rising rates in the data pool next week.

Let’s look at what the data did when mortgage rates rose 6.75% to 7.50% early in the year. 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. Then mortgage rates rose, as has been common recently, and demand declined.

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

• 12 positive prints
• 5 negative prints
• Six straight weeks of positive results, and last week’s data was flat, easily making it the best seven-week period of the year.
• Three straight weeks of positive year-over-year data last week delivered positive year-over-year growth of 8%

We’ll keep an eye on how higher rates impact the data for the rest of the year. Lately this has been minimal, but history says this won’t last long, especially if interest rates rise.

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. The weekly data strengthened as rates fell, but now we need to see what this data looks like with rising rates. Although it has lost some steam, there is nothing harmful in the data yet.

These are the weekly open sales for the past week for the past years:

• 2024: 350,455
• 2023: 325,584
• 2022: 351,527

Coming up next week: Fed speeches, retail sales and the start of the housing market

Several Fed presidents will speak this week, including Kashkari and Waller; pay attention to that. This week we also have bond auctions and retail sales. The housing data will be interesting: the purchasing app data should show some stimulus from rising rates. The confidence of the builders will not show yet, but we will be able to see their mentality with rates of almost 6%. Finally, with some bond auctions in the mix, we’ll have a housing market start on Friday – the date line that exceeded expectations last month and started pushing 10-year yields higher.