A few months ago, on the HousingWire Daily podcast, I said price-growth data would cool down in the year’s second half. Now, I am 100% surprised that pricing has stayed as firm as it has in our weekly data, so my forecast of 2.33% national home price growth is in jeopardy of being too low.
Here are the price-cut percentages for last week over the previous few years:
- 2024: 39.5%
- 2023: 39%
- 2022: 43%
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%
We have had a lot of confused consumers, mortgage loan officers, and real estate agents over the last five weeks. I understand the shock of seeing mortgage rates rise as fast as they did. CNBC recently asked me to talk about this. If you want a deeper explanation on why mortgage rates have gone up since the Fed rate cut, I covered this topic in a recent HousingWire Daily podcast. We have jobs week coming up, which can move the bond market; what none of us want to see is the 10-year yield breaking above 4.40%, which would send mortgage rates higher.
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; mortgage rates would be much higher today without the spreads improving. Unfortunately, the spreads have worsened with the recent spike in mortgage rates. Still, if I took the worst spreads from last year, mortgage rates would be 0.75% higher today. If mortgage spreads were back to normal, you would see mortgage rates lower by 0.71%—0.81%.
Weekly pending sales
Below is the Altos Research weekly pending contract data to show real-time demand. This data line is very seasonal, as we can see in the chart below, and we should remember how high mortgage rates were at this time last year. We are now showing growth versus 2023 and 2022 data in this data line, but context is critical. 2022 sales had the fastest crash ever, and 2023 home sales were at record low levels, so take the growth in context with those two truths.
Imagine if mortgage rates stayed at 6% for 12 months; if that was the case, sales would be growing easily year over year. We have plenty more housing inventory this year versus last to promote growth sales when rates go lower.
This is the weekly pending sales for last week over the previous few years:
- 2024: 356,127
- 2023: 319,464
- 2022: 339,016
Purchase application data
The winning streak of purchase application data ended with higher rates and now we have back-to-back negative weeks. Last week’s drop almost put us into flat year-over-year territory, even with extremely low comps. Purchase apps were down 5% week to week and only up 3% year over year.
When mortgage rates were running higher earlier in the year (between 6.75%-7.50%), this is what the purchase application data looked like:
- 14 negative prints
- 2 flat prints
- 2 positive prints
Since mortgage rates started falling in mid-June, here’s what purchase applications looked like:
- 12 positive prints
- 5 negative prints
- 1 flat
- 3 straight positive year-over-year growth prints
With mortgage rates up again, here is where we are:
- 2 negative prints
- 0 positive weekly prints
We only have back-to-back positive year-over-year data due to a low bar.
The week ahead: Jobs, inflation, bond auctions and home prices
Are you ready for a Halloween week of data that can drive bond yields screaming one way or another? This is it! We have jobs week, plus inflation data with the PCE reports, a few bond auctions and national home price reports.
Of course, labor over inflation always drives yields lower. Weaker labor data drove yields lower from June to September and jobs week last month beat estimates and sent bond yields higher. The key for this week is to see how the bond market reacts to each labor report because we have made a near-70-basis-point move higher in the 10-year yield since the morning the Fed cut rates. For the 10-year yield, the critical level that we don’t want to exceed is 4.40%.
