Throughout the chaotic ride of 2024, the mortgage market has been nothing short of unpredictable. The roller coaster of mortgage rates has left many wondering if we have finally hit the bottom. With my forecast indicating a range of 7.25%-5.75%, the path to the lower end of this spectrum involves a significant softening of the labor market and an improvement in mortgage spreads. This double-whammy impact has indeed unfolded.
As September unfolds, the big question remains: could my forecast be proven wrong? The real test lies in two critical factors:
My 2024 forecast included the following ranges:
- Mortgage rates: 7.25%-5.75%
- 10-year yield: 4.25%-3.21%
The key to reaching the lower end of this forecast range hinges on the convergence of two crucial variables: a weaker labor market and improved spreads. These factors are pivotal in driving rates down. Despite much talk about the impact of Fed rate cuts, it is evident that the market has already factored in these cuts to a large extent. However, what remains to be priced in is the looming possibility of a recession.
The current 10-year yield stands at 3.74%, leaving some room for further decline to hit the rock bottom of the 2024 forecast. Yet, achieving this is contingent upon substantial weakening of labor and economic data, making it a waiting game to witness how these variables unfold.
Mortgage Spreads
Unlike the negative trend experienced in 2023, 2024 has seen a positive trajectory in mortgage spreads. A significant shift has taken place, offering a pathway to return to historical norms and bring mortgage rates down towards the lower end of the forecast.
Taking into account the worst spreads from 2023, instating them today would lead to an increase of 0.68% in mortgage rates. Nonetheless, despite the improvement in spreads this year, current rates remain 0.85% higher in comparison to the lower levels observed in 2022.
Purchase Application Data
Mirroring the positive momentum in the housing market, purchase applications have displayed a continuous upward trend, marking four consecutive weeks of growth – the lengthiest streak this year. Although last week saw a modest 5% weekly increase, the year-over-year decline of 0.4% was the smallest since 2022, reflecting a positive shift in the data. The evolving landscape of purchase application data this year highlights the stark contrast between the bouts of success and downturn experienced with fluctuating rates.
Weekly Housing Inventory Data
One of the most prominent narratives of the housing market in 2024 has been the growth in inventory. The rise in available housing options, coupled with firming demand and reduced mortgage rates, signifies an ideal scenario for housing dynamics. The recent addition of houses to the average inventory model, alongside improved demand and favorable mortgage rates, suggests a promising outlook for the housing market.
- Inventory rose from 713,660 to 725,249 (Sept. 13-Sept. 20)
- Inventory rose from 519,458 to 528,797 in the same week last year (Sept. 14-Sept. 21)
- The yearly inventory peak for 2024 currently stands at 725,249
New Listings Data
Tracking a positive trajectory, new listings data has seen a notable increase from the historically low levels recorded in 2023. Recognizing that most sellers are prospective buyers, the return of this data to normal levels is paramount for sustained sales growth. Although there was a slight deviation from my 2024 forecast, the recent uptick in new listings data signals progress in the right direction.
Price-Cut Percentage
Standard housing trends indicate that roughly one-third of all homes undergo a price cut in an average year. The escalating mortgage rates observed last year have contributed to an influx of price cuts, particularly in light of the growing inventory. As rates have eased, the pace of price cuts has decelerated.
Indicative of a shallower end in price growth, my 2024 forecast accurately gauged the impact of rate fluctuations on market dynamics. Looking ahead, it is anticipated that the price-growth data will stabilize in the latter half of the year, potentially diverging from patterns observed in previous years.
Weekly Pending Sales
Insight into the real-time demand for housing, evidenced by the Altos Research weekly pending contract data, portrays a seasonal decline with slight year-over-year growth. The recent resurgence in demand, potentially catalyzed by lowered mortgage rates, bodes well for the housing market.
As we progress into the upcoming week, notable events such as Fed speeches, home price data, new home sales, and PCE inflation metrics are set to shape the market landscape. Stay tuned for potential market reactions and shifts in various market indicators.
In conclusion, 2024 has been a tumultuous yet transformative year for the mortgage market. As we anticipate further developments in the coming months, keep a close eye on the evolving trends and data points that will define the trajectory of the market.
