The Federal Reserve cut rates by 0.50% on Sept. 18 and mortgage rates and bond yields headed higher. But, we have to remember that mortgage rates had already made an almost 2% move lower since the highs of 2023 without rate cuts, as the bond market always gets ahead of the Fed.
Since the Fed rate cut, we’ve also seen significant economic data lines beat estimates: housing starts, retail sales, industrial production, GDP and labor data all came in better than expected. Mortgage rates had already reached the bottom of my 2024 forecast so the risk of rates going higher was a legitimate concern. As I have noted, once the 10-year yield gets below 3.80% we need to see weaker economic data for rates to drop and the opposite happened last week. This explains the rise in mortgage rates since the Fed cut rates.
10-year yield and mortgage rates
My 2024 forecast included:
- A range for mortgage rates between 7.25%-5.75%
- A range for the 10-year yield between 4.25%-3.21%
I forecast channel ranges with mortgage rates and the 10-year yield because we can all follow the economic data that matters and look for crucial inflection points with rates. This is what I call the slow dance with the 10-year yield and 30-year mortgage rates.
The strong economic data we’ve seen in the past several weeks underscore why the 10-year yield and mortgage rates rose last week. The real kicker was Friday’s jobs report, which showed that the three and six-month job creation averages are closer to my labor forecast than before.
Mortgage spreads
The mortgage spread story has been positive in 2024, whereas it was negative in 2023. We have seen a big move already this year, and in real terms, if the spreads hadn’t improved this year, we would be talking about 7% mortgage rates today. If we took the worst spreads from 2023 and incorporated those today, mortgage rates would be 0.77% higher right now. At the same time, we are far from average with the spreads, as we are still 0.76% higher today than the low levels of 2022 in the chart below.
Purchase application data
Mortgage rates have ticked up this week noticeably and it should break our winning streak of six straight weeks of consecutive positive purchase app gains. Last week, we had 9% year-over-year growth in purchase apps, which made it back-to-back weeks of positive year-over-year data. We have to remember that last year at this time, mortgage rates were heading toward 8% and it created a very low comp to work with.
This is what weekly purchase application data looked like with rising rates starting from the latter part of January:
- 14 negative prints
- 2 flat prints
- 2 positive prints
Even though the purchase application data wasn’t showing much downside on volumes earlier in the year, the weekly data was very negative. Before late January, when rates started to rise, we had about eight weeks of positive trending purchase apps. Then what typically happens lately, mortgage rates head higher and demand fades.
This is what weekly purchase application data looks like since mortgage rates started to fall in mid-June:
- 12 positive prints
- 5 negative prints
- 6 straight weeks of positive gains
- 9% positive year-over-year growth last week
The volume down and up this year hasn’t been much, but we can see a difference in the data now. The 12 weeks of positive data both came with mortgage rates headed toward 6%. We’ll see what happens with the noticeable rise in rates over the last several weeks.
Weekly pending sales
Below is the Altos Research weekly pending contract data to show real-time demand. Now, this data line is very seasonal, as we can see in the chart below, and we all know that mortgage rates were heading toward 8% a year ago, so we need to be mindful of the positive year-over-year data. The weekly data has firmed up with lower mortgage rates. However, the recent increase in mortgage rates should slow down the progress made.
- 2024: 354,816
- 2023: 326,593
- 2022: 358,740
Weekly housing inventory data
Three weeks ago was the best week of inventory growth in 2024, as we hit my model range without higher mortgage rates: I gave it the chef’s kiss. We couldn’t pull that off two weeks ago and last week, inventory growth slowed to 3,273. The seasonality factor is something we have to keep in mind here, but to me the best housing story of 2024 was that we got active inventory higher, something we couldn’t achieve from 2020-2023.
- Weekly inventory change (Sept. 27-Oct 4): Inventory rose from 731,017 to 734,290
- The same week last year (Sept. 28-Oct 5): Inventory rose from 534,746 to 537,032
- The all-time inventory bottom was in 2022 at 240,497
- The yearly inventory peak for 2024 is 734,290
- For some context, active listings for this week in 2015 were 1,169,733
New listings data
New listings data has been another positive story in 2024, as we needed more sellers! Now, I didn’t hit my minimum target of 80,000 during the seasonal peak months — I was off by 5,000 — but I see it as a win because even though 2024 was the second-lowest new listings data year ever, it did have a bounce from 2023, which was the lowest level ever.
- 2024: 60,655
- 2023: 58,103
- 2022: 58,083
Price-cut percentage
In an average year, one-third of all homes take a price cut — this is standard housing activity. Rising mortgage rates last year and this year have created a growing level of price cuts, especially with inventory rising. When mortgage rates fell recently, the price-cut percentage cooled down. The Pending New Median Price Index of our data line has just taken off recently, something that Mike Simonsen will discuss on his Altos podcast Monday.
A few months ago, on the HousingWire Daily podcast, I discussed that the price-growth data would cool down in the year’s second half. The price-cut percentage data is below 2022 levels and risks an earlier seasonal curve lower than 2022 and 2023. Now we need to see if higher mortgage rates change this data line before we see the seasonal downtrend in inventory.
Here are the price-cut percentages for last week over the previous few years:
- 2024: 39.5%
- 2023: 38%
- 2022: 42%
The week ahead: Fed speeches, bond auctions and inflation week
We will have a ton of Fed presidents talking this week and it gets more interesting to hear what they say, especially after the jobs report. Also, we have a few bond auctions and it’s CPI and PPI inflation week. However, as we can all see now, more than ever, it’s the labor market that is running the show. I also want to see how purchase application data reacts to the recent move in mortgage rates; traditionally, we will see a decline week to week after rates tick up higher.
Always great info would love a deeper dive into what drive the spreads
seemed like bank crisis drove them higher and they have been adjusting down but still a far cry from 2022 levels so what are the drivers to drive them back in the 2022 direction
My premise in 2024 was that the Closer we get to the first rate cut the spreads should improve, then did. Overtime with a rate cut cycle in motion the spreads should improve, as volatility with rates become less.