Mortgage rates and the 10-year yield
What a crazy week! Not too long ago, on jobs Friday, I was on the HousingWire Daily podcast saying it’s time to declare war on the Federal Reserve for being too restrictive; you can listen to the podcast here. A few days later, the Fed corrected its mistake — they didn’t go hawkish but instead made doves cry and bond yields acted correctly, sending the 10-year yield below 4% and mortgage rates under 7%.
Right after the Fed presser I did another podcast where I outlined why this was so positive for the U.S. economy. You can see it in the stats from last week, where the 10-year yield fell from 4.25% to end the week at 3.91%. Mortgage rates went from 7.10% to 6.62% and ended the week at 6.64%.
As I have said before, given the history of economic cycles, when the market believes the Fed rate-hike cycle is over, bond yields will rally and mortgage rates will fall. We have had an almost 1.5% move lower in mortgage rates without one rate cut happening, and that looks normal to me. We shall see if we can hold those gains next week.
Purchase application data
Even before mortgage rates dropped below 7.25%, we saw a positive move in purchase application data, which continued last week with another week of gains. That means we’ve had a positive trend for the last five weeks. Purchase apps were up 4% week to week, and as crazy as it might sound, we could end the year with more positive weekly prints than negative as the year-to-date count is 23 positive and 23 negative, with two flat prints.
During the last two weeks of the year, nothing much usually happens with purchase apps as we prepare for Christmas and the New Year, but I will always track the data! But the fact that we can even talk about a positive year when mortgage rates got to 8% demonstrates something that I have been talking about since Nov. 9, 2022, and for many years: It’s rare the U.S. to have existing home sales trends below 4 million with any duration post-1996. We have a core set of 4 million homebuyers every year for more than 25 years, and that hasn’t broken yet.
Weekly housing inventory data
Weekly active listing data is declining now like it always does every year at this time due to seasonality. Higher mortgage rates resulted in higher inventory during part of the fall and forced the seasonal decline in inventory to start later this year. However, the laws of seasonality always win in the end, and we are well on the road to a seasonal decline in inventory.
Last year, according to Altos Research, the seasonal peak for housing inventory was Oct. 28. The seasonal peak this year was on Nov. 17.
- Weekly inventory change: (Dec. 8-15): Inventory fell from 546,424 to 538,767
- Same week last year (Dec. 9-16): Inventory fell from 536,409 to 522,869
- The inventory bottom for 2022 was 240,194
- The inventory peak for 2023 so far is 569,898
- For context, active listings for this week in 2015 were 1,037,129
New listing data in 2023 has been a positive story; even with higher mortgage rates, we didn’t see more sellers pull back as they did in 2022 after rates surpassed 6%. Because we saw stability in 2023, I was looking for some flat to positive year-over-year growth in the data during the second half of the year. This is what we see, and it’s much needed; we need more new listings and not fewer. Even though this data line has been trending at the lowest levels ever in history for 17 months, it’s positive that we are seeing growth on a year-over-year basis now. This was something I talked about on CNBC months ago.
New listings data for last week in the last several years:
- 2023: 39,613
- 2022: 34,973
- 2021: 39,936
Traditionally, one-third of all homes will have price cuts before they sell. When mortgage rates rise and demand decreases, more homes see price cuts. However, even with mortgage rates reaching 8% this year, we trended below 2022 levels the entire time. Now that mortgage rates have fallen almost 1.5%, it will be interesting to see what the spring season in 2024 will look like. If demand does pick up as we are seeing now, the percentage of houses taking price cuts will likely fall further.
Price cut percentages this week over the last few years:
- 2023: 38%
- 2022: 41%
- 2021: 26%
The week ahead: Housing and Inflation
Housing week is here so we have four reports: the builders confidence Index, housing starts, existing home sales and new home sales. Also, we have the Fed’s critical inflation data report in the PCE, and it will be interesting to see how the bond market reacts to this report now that the Fed is discussing rate cuts. We also have the leading economic index to report on.
So, tons of data coming out this week. One thing about existing home sales: purchase application data started to improve five weeks ago. This data line looks out 30-90 days, so this existing home sales report might be too early to take into account the entire positive move in the forward-looking data.
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