Mortgage rates dodge a bullet – for now

Last week, we risked breaking a key level in the bond market, which could have sent prices higher. We also have plenty of economic, political and Fed news that could push rates higher. Despite all these negative headlines, we've dodged a bullet for now; we have captured the key levels and we live to fight another day.

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%

As we approach the end of the year, we can see that my forecast for mortgage rates is correct for most of 2024. Rates fall as economic data weakens, and rates rise as economic data improves. Last week we had good economic data, slightly warmer inflation data, and some dovish statements from Chairman Powell, but we were lucky that the 10-year yield didn't breach the key level to send mortgage rates higher.

Mortgage spreads

The mortgage spread story turned positive in 2024 and negative in 2023. With spreads improving, we've gotten rates close to 6% this year. Without better spreads, mortgage rates would be over 7.50% today.

Unfortunately, spreads have worsened somewhat with mortgage rates. Again, if I were to take the worst spreads from last year, mortgage rates would be 0.72% higher today, whereas if mortgage spreads were to normalize, you would see mortgage rates currently down 0.71% to 0.81%.

For those who want a deeper look at what President-elect Trump has in store for mortgage rates and housing policy, check out this one.

Buy app data

When looking at purchase application data, I'm always trying to find the mortgage rate range that could boost housing demand and figure out what levels would soften demand. We are no longer failing home sales like we were in 2022. However, we only see growth when mortgage rates approach 6%.

Last year, when mortgage rates fell from 8% to the mid-6% range, we saw an increase in demand, but it wasn't spectacular. However, lower prices pushed home sales up by a combined 500,000 in the two months earlier this year. So I'll see if we can get an earlier average traditional seasonal run in buying programs starting this week.

Purchase programs this week were up 2% weekly and 1% year-over-year. The shallow bar in annual data from rates heading towards 8% last year is now officially over.

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 start falling in mid-June, purchase applications look like this:

• 12 positive prints
• 5 negative prints
• 1 flat print
• 3 straight positive growth tracks year over year

As mortgage rates rise again, here we are:

• 3 negative prints
• 2 positive weekly prints
• 5 straight weeks of positive annual data, but the bar for that is low.

Weekly expected sales

Below is weekly expected contract data to show real-time demand. As you can see in the chart below, this data line is highly seasonal. Despite high mortgage rates, this data line still shows steady growth year over year. Keep in mind that the second half of 2022 saw the biggest collapse in home sales ever, and last year prices went down towards the end of the year. Nevertheless, it's nice to see that this data line continues to show year-over-year growth.

Weekly housing inventory data

Two weeks ago, housing inventory fell a little more than I expected, and so did new listing data. I thought maybe the election held some people back from listing their homes. With that assumption, I was expecting a bigger drop in inventory last week, looking for numbers between 4,500-4,800, but it turned out to be less than 1,000.

If you want to know why the inventory data looks a little different now (and if you just want to reply to Daye Daye at Thanksgiving who read the headlines and said it was flat again in 2008) this is for you.

• Weekly inventory change (November 8-November 15): Inventory has gone up 721,576 for 722,032
• Same week last year (November 10-November 17): Inventory rose 566,882 for 569,898
• The all-time inventory level in 2022 was 240,497
• The inventory peak for 2024 so far is 739,434
• For some context, active listings for this week in 2015 were 1,135,684.

New listing information

I thought the new listing data would show more growth than what we got last week, but that didn't happen either; we are in a seasonal slump here too. Again, it's a big positive for the housing market that we're seeing growth in 2024, but context is important as this is the second lowest year on record.

• 2024: 51,832
• 2023: 48,610
• 2022: 46,916

Price discount percentage

On average, one-third of all households buy a home per year – this is standard housing activity. When mortgage rates rise, the discount rate increases. When prices fall and demand increases, this data line may cool, as it has recently.

Here are the last week's price cuts over the last few years:

• 2024: 38.8%
• 2023: 39%
• 2022: 43%

Next week: Housing data and the Fed's Austan Goolsbee

The critical data for next week is housing data; Builder confidence and housing start data are important to my business cycle. Residence permits and starts are already in the early stages of the COVID-19 downturn and we are working through the backlog of orders. So this week I want to see how builders react to higher mortgage rates, because according to my economic models, when housing workers start losing their jobs, a recession is not far off. This is something I bring up. I also recently discussed what to expect for housing in 2025 with Mike Simonsen.

This week, I'll also be following Chicago Fed President Austan Goolsby; he is probably the most dovish of all Fed presidents, even questioning why long-term rates are rising. Stay with us.

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