Will we see a Sinterklaas rally in mortgage rates?

Despite initial concerns that rates would push mortgage rates up to 8% and reduce housing demand, this week has brought encouraging news. Ten-year yields have remained stable at a crucial technical level and have even moved in reverse, resulting in improved mortgage rates. Moreover, demand for housing has surprisingly remained stable, even with higher mortgage interest rates.

While the increase in demand may not be significant, it is still a positive development and worth celebrating! Let’s take a look at the latest housing data to gain insight into the market as we approach the end of the 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 recent decline in mortgage rates can be attributed to bond market dynamics and current sentiment among bond traders. They see potential gains from buying the 10-year bond at current levels, especially now that 10-year yields have fallen Citigroup economic surprise index has peaked in the short term and has faded away.

Previously, there was significant concern about the possibility of a new wave of inflation, which would require a rate hike, which I recently threw cold water on in a recent article. HousingWire Daily Podcast. However, the recent peak in 10-year yields was around 5% in 2023, and the downward trend from that level is intact for now. So as long as economic data doesn’t surprise the upside, bond yields should stay well away from 5%, meaning mortgage rates won’t get anywhere near 8%.

When I talk about a Christmas rally, I mean people buying the 10-year rate and lowering the mortgage rate, due to the slow dance between the 10-year rate and the mortgage rate. This is what happened in the last two years. We’ll see if we get a repeat this year.

Mortgage spreads

The situation of mortgage spreads has improved in 2024, especially compared to the difficult times in 2023. Thanks to this positive change, mortgage rates reached 6% without the ten-year rate reaching 3.37% in 2024. Imagine if spreads hadn’t improved – Mortgage rates could now be above 7.50%!

While we have seen a slight increase in spreads since mortgage rates began rising in September, it is important to note that they are still in a much better place than the peak levels we experienced last year. If spreads had remained as high as they were in 2023, mortgage rates would now be about 0.60% higher. On the other hand, if we look at average spreads, we would see mortgage rates fall by about 0.93% to 1.03%. Overall, it’s encouraging to see progress in the mortgage market!

Weekly ongoing sales

The weekly current contract data of Alto’s research gives us an extraordinary insight into real-time housing demand. It’s interesting to see how this data follows seasonal trends, as shown in the chart below. Initially we saw solid performance when mortgage rates were near 6%. It is encouraging to see that current contracts are holding up year after year, even though house prices and mortgage rates have been higher recently. This trend has piqued my interest and I’m excited to keep an eye on it! Imagine if mortgage rates remained between 5.75% and 6.25% for twelve months.

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

• 2024: 317,080
  2023: 296,615
  2022: 299,312

While our pending contract data showed year-over-year growth months ago, NAR’s pending home sales are only now catching up.

Buy application data

The recent purchase request data was quite surprising. When mortgage interest rates rise from a lower trend, the effects are detrimental for some time. However, last week’s purchasing app data showed a weekly growth of 12%, which is now a positive trend for the past seven weeks, which was not on my holiday bingo card. The past seven weeks:

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

Based on two years of data, we see a positive growth trend in purchase requests as mortgage rates approach 6%.

Weekly home inventory data

Housing inventory fell last week, which is typical for this time of year. We can expect a drop in inventory until the spring season starts to warm up again. The peak inventory in 2024 will be 739,434, which is not a normal inventory level, but at least we have seen good, healthy growth this year. Year-over-year inventory growth is the best housing story for 2024.

• Weekly Inventory Change (November 22 – November 29): Inventory decreased from 719,055 Unpleasant 706,554
• Same week last year (November 24 – November 30): Stock fell from 565,875 Unpleasant 555,717
• 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 1,082,020

Currently, new listings data is experiencing a seasonal decline, with a slight decline observed last week. We can expect an even more significant seasonal drop this week.

While I underestimated the growth of new listings data during the peak seasonal weeks by 5,000, it is encouraging that we saw growth in 2024. However, it is worth noting that both 2023 and 2024 will be recorded as the two lowest years for new listings in history. The idea that homeowners would rush to sell their homes in large numbers is simply wrong. American homeowners don’t act like stock traders or get caught up in sensational online content YouTube damnations. They just live their normal lives every day.

New ad data from last week:

• 2024: 51,800
• 2023: 28,297
• 2022: 28,471

In an average year, about a third of all homes experience a price drop, which is typical for the housing market. When mortgage rates rise, the percentage of homes that reduce their price will generally increase. Conversely, this trend could slow down if interest rates fall and demand increases, as we recently saw when interest rates fell. However, mortgage interest rates have risen again. We are at the same level as last year, despite more stock being available.

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

• 2024: 38.7%
• 2023: 39%
  2022:43%

One thing that has surprised me in the second half of 2024 is how resilient our upcoming new home price index has been in a soft seasonal period, with higher inventory and mortgage rates above 6%.

The coming week: Jobs Week!

There will be a lot to discuss this week; it’s the most crucial week of the month for economic figures because it’s employment week! We have several important reports, including job openings, the ADP report, unemployment claims, and the important BLS Jobs report scheduled for Friday. We have already seen a notable drop in interest rates, so it will be interesting to see what happens next with mortgage rates. We also have ISM data, bond auctions and some Fed presidents speaking. So buckle up and let’s see how the bond market reacts to this week’s data.