Even with high mortgage rates, demand for housing is steady

The holiday season is here, and despite being higher last week, housing demand is showing some holiday resilience. Typically, we expect a decline in activity at high rates, but a seasonal boost helped the purchase application data in the last month. Additionally, our pending contracts still reflect year-over-year growth. Let's take a look at this week's data to see if this trend can continue through the rest of 2024.

Weekly expected sales

Weekly pending contract data gives us a great view of real-time housing demand. As with most housing data, we are currently experiencing a seasonal decline in volume, which is pretty standard for this time of year. Mortgage rates rose last week, although this did not significantly impact our expected contract data, which showed positive growth each year when we compared 2022 and 2023.

Remember, we're coming off all-time lows, so we have to take these small bounces with a grain of salt. It is encouraging to see that we have found the firmer bottom that I discussed recently.

Here are the expected weekly sales for the past week over the past few years:

• 2024: 304,034
• 2023: 275,022
• 2022: 277,102

Buy app data

Weekly data on shopping apps showed a 4% week-over-week decline. The unadjusted data showed a 30% gain, but we usually ignore that number. Year-on-year indicators remain positive, increasing by 4%. Purchase requests are considered 30-90 days before this housing demand reaches sales data.

Unlike the extremely low comparisons we made in October and early November, the current data reflects a legitimate year-over-year growth trend. I'd be surprised if we see another year-over-year positive next week, but shopping apps performed better than average. Traditionally, the seasonal housing loss would begin after the second week of January, but in the past few years it has started in November.

As mortgage rates have risen recently, according to weekly data, that's what the data looks like

• 5 positive prints
• 4 negative prints

When mortgage rates were higher at the beginning of the year (6.75-7.50%), purchase application data looked like this:

• 14 negative prints
• 2 flat print
• 2 positive prints

When mortgage rates started to fall, buyout programs looked like this:

• 12 positive prints
• 5 negative prints
• 1 flat print

It will be interesting to see if there is a negative print next week because of how much the higher rates have affected the data this year, because rates are significant, but there is a slight uptick for the year right now.

10-year income and mortgage interest

I include:

• It is for mortgage interest rates between 7.25%-5.75%
• 10-year yield range of 4.25%-3.21%

Last week, the 10-year yield rose from 4.13% to 4.40%, a sharp increase in anticipation of the upcoming yield. Federal Reserve meeting In addition, the Atlanta Fed reported that economic growth in the United States will again exceed 3%. We are still seeing a bearish trend in bond yields, with current levels testing the upper channel ahead of the Fed meeting, indicating an interesting week ahead.

Although mortgage rates rose, the increase was not as sharp as expected as mortgage spreads improved this week. Housing demand has improved over the past two years, when 10-year yields have fallen enough to drive mortgage rates closer to 6%.

Mortgage spreads

I can't stress enough how positive this year's mortgage spreads are for the overall economy and the economy. If spreads were to remain as unfavorable as last year, we would likely see fewer housing permits and starts, and we could experience a loss of housing construction jobs in certain parts of the United States.

Despite the recent rise in 10-year yields, mortgage rates have performed better than in the past because spreads have not worsened. If we had the worst spreads from last year, mortgage rates today would be about 0.60 percentage points higher. Conversely, if mortgage spreads were to normalize, we would expect mortgage rates to be around 0.73% to 0.83% lower. Last week is a good example: although rates rose, this year proved to be better than last year due to more favorable spreads.

Unemployment claims

This is the first time I've entered jobless claims data into the weekly tracker. This is important because the main factor that could push rates below my forecast of 5.75% is a potential downturn in the labor market. In particular, it could be significant if jobless claims rise to 323,000 in the four-week moving average.

We saw a notable spike in the index last week, which many attributed to the holidays disrupting labor data. However, the latest figures: the number of people applying for benefits for the first time after leaving the job increased by 17 thousand to 242 thousand. Meanwhile, the four-week moving average rose 5,750 to 224,250.

Weekly housing inventory data

We have a seasonal decline, which seems normal. The positive outlook for housing in 2024 is that we have built a good buffer with our inventory data – something we were unable to do in 2020-2023. I am pleased with the inventory growth we see in 2024.

• Weekly inventory change (Dec 6-Dec 13): Inventory has dropped 690,015 for 682,150
• Same week last year (December 7-December 14): Inventory fell 546,424 for 538,767
• The all-time inventory level was in 2022 240,497
• Inventory peak for 2024 so far 739,434
• For some context, these were the active listings for this week in 2015 1.050780

New Announcements

New listings data last week showed its typical seasonal decline, but we also saw the familiar Thanksgiving comeback that happens every year. Thanksgiving came a week later this year, so there were week-long delays in many weekly housing data. While not reaching my target levels this year, it is encouraging to see some growth in this data line. Overall, this is a positive development for the United States. It was a very negative story in 2023 with new listings trending at the lowest levels recorded in history.

New listing information for last week:

• 2024: 45,284
• 2023: 39,613
• 2022: 34,973

Price discount percentage

In an average year, about one-third of all homes experience a default event in the housing market. When mortgage rates rise, the percentage of homes that fall in price increases significantly. Conversely, when rates fall, this trend declines and demand increases, as we have seen recently with lower rates.

I was expecting more softening in prices in the second half of 2024, but according to our own data lines, this has not happened as much as I thought, so my price forecast for 2024 of 2.33% seems a bit low. A cooling of price growth in 2024 is another positive story. Something about 2024, when housing demand improves with mortgage rates hitting 6%, price cuts have weighed on interest data.

We present last week's depreciation percentages compared to previous years:

• 2024: 38.1%
• 2023: 38.%
• 2022: 41%

The week ahead: It's Fed week, with tons of other reports

We have an eventful week ahead, highlighted by the Fed meeting and key economic reports. As for the Fed, the language they used this week is crucial. A rate cut of 0.25% is widely expected, but many also expect the Fed to be cautious in 2025 unless economic data shows the need for an acceleration.

This week we can also expect Global PMI reports, bond auctions, builder survey index, housing starts, existing home sales, retail sales and more. Given that the 10-year yield has already made a significant move over the past week, it will be important to watch how the market reacts to Fed announcements and economic reports.

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