Mortgage rates are dodging a bullet – for now

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Mortgage rates are dodging a bullet – for now

Last week we risked breaking a key level in the bond market, which could have pushed mortgage rates much higher. We also had a lot of economic, political and Fed news that could have pushed rates higher. Despite all those negative headlines, we have managed to dodge a bullet for the time being; the key levels have been preserved and we live to fight another day.

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%

As we approach the end of the year, we can see that my mortgage rate forecast has held up through most of 2024. As economic data weakens, interest rates fall, and as they improve, interest rates rise. Last week we had good economic data, slightly warmer inflation data and hawkish statements from Chairman Powell, but we were lucky when the 10-year yield did not break a key level that would cause mortgage rates to rise.

Mortgage spreads

The mortgage spread story was positive in 2024, while it was negative in 2023. With spreads improving, we achieved yields of almost 6% this year. Without better spreads, mortgage rates today would be above 7.50%.

Unfortunately, spreads have deteriorated slightly due to the recent spike in mortgage rates. But if I took the worst spreads from last year, mortgage rates would be 0.72% higher today, while if mortgage spreads returned to normal, mortgage rates would now be 0.71% – 0.81% lower.

For those who want a deeper dive into what to expect in terms of mortgage rates and housing policy under President-elect Trump, check out this recent article. HousingWire Daily Podcast.

Buy application data

When I look at purchase application data, I always try to find the mortgage rate range that can grow housing demand and figure out what levels will soften demand. We will no longer see a crash in house sales like in 2022. However, we will only see growth when mortgage interest rates approach 6%.

Last year, when mortgage rates fell from 8% to mid-6% levels, we saw demand pick up, but nothing spectacular. However, lower rates caused home sales to grow by a total of 500,000 in two months earlier this year. So starting this week, I’ll be looking to see if we can get a traditional seasonal run in purchasing apps sooner than average.

This week, purchasing apps were up 2% weekly and 1% year over year. The shallow bar in the year-on-year figures, with interest rates heading towards 8% last year, is now officially over.

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
3 consecutive positive annual growth rates

Now that mortgage rates have risen again, here we are:

3 negative prints
2 positive weekly prints
Five consecutive weeks of positive year-on-year data, but the bar for this is low.

Weekly ongoing sales

Below you will find the Altos Research weekly ongoing contract data to reflect real-time demand. This data line is highly seasonal, as shown in the chart below. Even with higher mortgage rates, this data line still shows steady year-over-year growth. Remember, the second half of 2022 saw the biggest home sales crash on record, with interest rates heading towards 8% late in the year last year. Still, it’s nice to see this data line continuing to show growth year after year.

Weekly home inventory data

Two weeks ago, home inventory dropped a little more than I expected, and so did the new home data. I assumed the election might have deterred some people from listing their homes. With that assumption, I expected a bigger pullback in inventory last week, looking for numbers between 4,500 and 4,800, but it turned out to be less than 1,000.

If you want to know why inventory data looks a little different now (and answer your Uncle Dave on Thanksgiving who only reads the headlines and says it’s 2008 again), then this article is for you.

Weekly Inventory Change (Nov 8 – Nov 15): Inventory increased from 721,576 Unpleasant 722,032
Same week last year (November 10 – November 17): Stock rose from 566,882 Unpleasant 569,898
The lowest inventory level of all time was in 2022 at 240,497
The inventory peak for 2024 to date is 739,434
For some context, the number of active mentions for this week in 2015 was 1,135,684

New advertising data

I thought the new ad data last week would show more growth than we got, but that didn’t happen either; we are also in the seasonal slump here. Still, it’s a big positive for the housing market that we’ve seen growth in 2024, but context is critical as this is the second lowest year on record.

2024: 51,832
2023: 48,610
2022: 46,916

Price reduction percentage

In an average year, a third of all homes are reduced in price; this is the standard home activity. When mortgage rates rise, the price reduction percentage grows. When rates fall and demand picks up, this data line can cool off, as has been the case recently.

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

2024: 38.8%
2023: 39%
2022: 43%

Coming up next week: housing numbers and the Fed’s Austan Goolsbee

The critical data for next week is the housing data; Builder confidence and data on home construction starts are essential to my work in the economic cycle. Housing permits and starts are already at early levels of the COVID-19 recession and we are working through the backlog of orders. So this week I want to see what builders think about higher mortgage rates, because according to my economic models, the recession won’t be far away once home construction workers start losing their jobs. This is something I bought CNBC recently. I also recently discussed what we can expect for housing in 2025 on the website Top of Mind podcast with Mike Simonsen.