Demand for housing remains resilient, even with higher mortgage rates

The holidays are here and despite last week’s higher mortgage rates, housing demand is showing some festive resilience. Typically, we expect a decline in activity at higher rates, but a seasonal boost will help last month’s purchasing data. Furthermore, our current contracts continue to reflect double-digit year-over-year growth. Let’s take a look at this week’s Tracker data to see if this trend can continue through the rest of 2024.

Weekly ongoing sales

The weekly current contract data of Altos Research gives us a good insight into real-time housing demand. As with most housing data, we are currently experiencing a seasonal volume decline, which is fairly standard at this time of year. Mortgage rates rose last week, but that didn’t significantly impact our current contract data, which shows positive year-over-year growth when compared to 2022 and 2023.

Remember, we’re coming from one of the lowest levels ever, so we have to take these small jumps with a grain of salt. It’s encouraging to see that we’ve found firmer ground, which I discussed on this recent HousingWire Daily podcast.

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

• 2024: 304,034
• 2023: 275,022
• 2022: 277,102

Buy application data

Weekly purchase request data showed a week-on-week decline of 4%. The unadjusted data indicated a 30% gain, but we typically ignore that figure. On a year-over-year basis, the data remains positive, with an increase of 4%. Purchase requests are expected 30 to 90 days before this housing demand reaches sales data.

Unlike our extremely low comparisons in October and early November, the current data reflects a legitimate growth trend year over year. I would be surprised if we see another positive year-on-year result next week, but purchase requests have performed better than average. Traditionally, the seasonal housing squeeze would begin after the second week of January, but in the last few years it has started in November.

Based on the weekly data, the data looks like this, as mortgage rates have risen recently

• 5 positive prints
• 4 negative prints

When mortgage rates rose earlier this year (between 6.75%-7.50%), the purchase application data looked like this:

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

When mortgage rates started falling in mid-June, this is what it looked like:

• 12 positive prints
• 5 negative prints
• 1 flat print

Now that higher interest rates have impacted the numbers this year, it will be interesting to see if we get a negative picture next week, because rates do matter, but for now there is some slight growth year on year.

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%

The 10-year yield rose sharply last week, rising from 4.13% to 4.40% in anticipation of the upcoming Federal Reserve meeting. In addition, the Atlanta Fed reported that US economic growth is expected to return above 3%. We continue to see a downward trend in bond yields, with current levels testing the upper channel ahead of the Fed meeting, indicating that the week ahead will be interesting.

Although mortgage rates have risen, the increase has not been as sharp as expected as mortgage spreads have improved this week. Over the past two years, housing demand has improved when 10-year rates fall enough to bring mortgage rates near 6%.

Mortgage spreads

I can’t emphasize enough how positive mortgage spreads have been for the housing market and the overall economy this year. Had spreads remained as unfavorable as they were last year, we would likely see fewer housing permits and starts, and we may have experienced job losses in housing construction in certain parts of the US.

Despite the recent rise in 10-year yields, mortgage rates have performed better than in the past as spreads have not deteriorated. If we had last year’s worst spreads, mortgage rates would be about 0.60 percentage points higher today. Conversely, if mortgage spreads returned to normal, we could expect mortgage rates to be lower by around 0.73% to 0.83%. Last week is a good example: even as rates rose, this year has turned out to be much better than last thanks to more favorable spreads.

Jobless claims

This is the first time I’m including unemployment claims data in the weekly tracker. It’s important because a major factor that could push rates below my forecast threshold of 5.75% is a potential downturn in the labor market. If jobless claims rise to 323,000 at the four-week moving average, that could be significant.

Last week we saw a notable spike in the index, which many attributed to the holidays disrupting employment data. However, here are the latest figures: The number of people applying for benefits for the first time after separation from job increased by 17,000 to 242,000. Meanwhile, the four-week moving average rose by 5,750, bringing it to 224,250.

Weekly home inventory data

We are experiencing a seasonal decline in housing stock, which seems normal. The positive outlook for residential construction in 2024 is that we have built up a good buffer with our inventory data – something we would not be able to do in the period 2020-2023. I’m happy with the inventory growth we see in 2024.

• Weekly Inventory Change (December 6 – December 13): Inventory decreased from 690,015 Unpleasant 682,150
• Same week last year (December 7 – December 14): Stock fell from 546,424 Unpleasant 538,767
• The lowest inventory level of all time was in 2022 240,497
• The inventory peak for 2024 so far is 739,434
• For some context, the active listings for this week in 2015 were 1.050780

New offers

New stock market data last week showed the typical seasonal decline, but we also witnessed the familiar Thanksgiving rebound that occurs annually. Thanksgiving came a week later this year, hence the one-week delay in much of the weekly housing data. It’s encouraging to see some growth in this data line, even if it fell short of my target levels this year. Overall, this is a positive development for the US. It was a very negative story in 2023, when new quotes were trending at the lowest level ever in history

New ad data from last week:

• 2024: 45,284
• 2023: 39,613
• 2022: 34,973

Price reduction percentage

In an average year, approximately one third of all homes experience a price drop, a normal phenomenon in the housing market. When mortgage rates rise, the percentage of homes that reduce their price increases significantly. Conversely, this trend decreases when interest rates fall and demand grows, as we have recently observed with falling interest rates.

I expected more softness on prices in the second half of 2024, but according to our own data lines this didn’t happen as often as I thought, so my 2024 price forecast of 2.33% seems a bit too low. The cooling of price growth in 2024 is once again a positive story. One thing about 2024, when housing demand improved and mortgage rates headed toward 6%, impacted the price reduction rate data.

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

• 2024: 38.1%
• 2023: 38.%
• 2022: 41%

Coming up next week: It’s Fed week, and there are tons of other reports

We have an eventful week ahead, highlighted by the Fed meeting and major economic reports. When it comes to the Fed, the language they use this week is critical. Rates are widely expected to be cut by 0.25%, but many also expect the Fed to be cautious in 2025 unless economic data shows an acceleration is needed.

This week we can also expect global PMI reports, bond auctions, the builder survey index, home construction starts, existing home sales, retail sales and more. Since the 10-year yield has already made a significant move over the past week, it will be essential to observe how the market reacts to the Fed’s announcements and economic reports.