Why the demand for housing is now growing year-on-year

We’ve had three weeks of positive year-over-year growth in both purchase request data and weekly pending contracts data, with this past week seeing a noticeable jump compared to last year. Now for a dose of reality: This time last year, mortgage rates were heading toward 8%, and while 2023 saw record sales levels, things got even worse with rates at 8%. So context is crucial in housing data, especially in October. Let’s take a look at this week’s numbers.

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 remember how high mortgage rates were this time last year. We now show growth in this data line compared to 2023 and 2022 data, but context is critical. 2022 sales saw their fastest crash ever and 2023 home sales were at record lows, so consider the growth in the context of these two truths.

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

• 2024: 357,675
• 2023: 324,675
• 2022: 343,942

Buy application data

The winning streak of purchase application data just came to an end when mortgage rates skyrocketed. Before rates rose, we had six straight weeks of positive numbers and then one flat week. Last week, purchasing apps fell 7% week over week, which still shows year-over-year growth, but we can see the impact of higher fees in this week’s data.

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

Here’s the purchasing app data since mortgage rates started falling in mid-June:

• 12 positive prints
• 6 negative prints
• 1 flat
• 3 consecutive positive annual growth rates

We’ll monitor this data to see the damage done by the recent higher interest rates. History has shown us that when interest rates rise, it stops the growth of demand for data.

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

I have a crucial limit for the 10-year yield of around 3.80%. We need weaker economic data to get below that or even lower. We understood this when the jobsweek data showed a weaker labor market, but many recent data lines have exceeded expectations. I have explained this in detail here HousingWire Daily Podcast.

With recent economic data such as retail sales and unemployment claims positive, we ended last week with the 10-year yield at 4.08%.

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. Unfortunately, spreads have deteriorated slightly due to the recent spike in mortgage rates. But if I took last year’s worse spreads, mortgage rates would be the same 0.72% higher today. If mortgage spreads were back to normal levels, mortgage rates would be 30% lower 0.71% – 0.81%.

Weekly home inventory data

Five weeks ago we had the best week of inventory growth in 2024, hitting my model range even without higher mortgage rates. Two weeks ago, inventory growth was slightly negative, with some impact from the East Coast hurricanes. Last week we had an inventory increase of 7,024 homes. While this doesn’t fit into my higher rate inventory growth model of 11,000-17,000, it was a good week for active inventory growth.

• Weekly Inventory Change (October 11 – October 18): Inventory increased from 732,410 Unpleasant 739,434
• Same week last year (October 12 – October 19): Stock rose from 546,450 Unpleasant 554,350
• The lowest inventory level of all time was in 2022 at 240,497
• The annual inventory peak for 2024 is 739,434
• For some context, the number of active mentions for this week in 2015 was 1,171,775

New advertising data

New advertising data was another positive story in 2024 as we needed more sellers! I didn’t hit my minimum target 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 on record for new listings, it recovered from 2023 onwards. lowest level ever.

• 2024: 60,361
• 2023: 56,772
• 2022: 57,762

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 a growing number of price cuts, mainly as inventories have risen. When mortgage rates fell recently, the price reduction rate cooled.

A few months ago I said 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. We need to see if higher mortgage rates change this data line before we see the seasonal downtrend in inventories. I have to say I’m a little surprised at how well prices have held up lately in our weekly data.

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

• 2024: 39.5%
• 2023: 38%
• 2022: 43%

Coming up next week: Fed speeches and home sales data

This week we’ll have more speeches from Fed presidents, plus data on existing and new home sales. Please note that this week’s recent home starts data and existing and new home sales reports do not take into account recent higher mortgage rates. That’s why we’re focusing on our weekly housing data, which shows that higher mortgage rates were already wiping out purchase application data. I’ve discussed this CNBC on Fridaysaying that we don’t need a mortgage rate of 3% or 4% to grow sales from these low levels, but we do need a rate to get to 6% and stay there.