Last week, the financial markets teetered on the edge of a major breakdown that threatened to catapult mortgage rates into uncharted territories. Despite a flurry of economic, political, and Federal Reserve news that could have spelled disaster, we narrowly escaped disaster as key levels held firm, granting us a reprieve for the time being.
10-Year Yield and Mortgage Rates
In my 2024 forecast, I outlined a range for mortgage rates between 7.25% and 5.75%, along with a respective band for the 10-year yield between 4.25% and 3.21%. As we near the year’s end, it’s clear that my prognostication for mortgage rates this year has remained largely accurate. Economic indicators continue to influence rates, with improvements causing rates to surge and weaker data leading to a fall. Despite last week’s positive economic reports, including slightly higher inflation and hawkish statements from Chairmen Powell, we were fortunate that the 10-year yield did not breach the critical threshold, sparing us from a spike in mortgage rates.
Mortgage Spreads
Contrary to the negative spreads we witnessed in 2023, 2024 has been a year of positive developments in the mortgage spread arena. These improvements have played a pivotal role in keeping mortgage rates near the 6% mark. However, recent spikes in mortgage rates have caused a slight deterioration in spreads, threatening to push rates above 7.5%. Evidently, favorable spreads are essential in keeping mortgage rates in check, with a return to normal spread levels potentially driving rates down by up to 0.81%.
Purchase Application Data
The landscape of purchase application data offers valuable insights into the housing market’s pulse, highlighting the mortgage rate thresholds that can tip the scales in favor of increased demand. Unlike the sharp declines in home sales seen in 2022, the current market conditions dictate that growth occurs as mortgage rates approach 6%. Lowering rates from 8% to the mid-6% range last year caused demand to perk up, albeit modestly. Recent reductions in rates sparked a 500,000-unit boom in home sales over a two-month period, indicating a potential upswing. The latest purchase application figures reveal a 2% weekly uptick and a 1% rise year-over-year, signaling a turnaround from the sluggish pace observed when rates hovered around 8%.
Weekly Pending Sales and Housing Inventory Data
Altos Research’s weekly pending contract data captures real-time shifts in demand, showing continued year-over-year growth despite elevated mortgage rates. The steady uptrend in pending sales serves as a stark contrast to the market’s colossal downturn in late 2022 driven by 8% mortgage rates. Meanwhile, housing inventory dynamics reveal a surprise drop that defied expectations, possibly influenced by external factors such as the recent election. The unexpected slump in new listings data hints at seasonal adjustments but underlines the significance of sustained growth amidst challenging conditions.
New Listings Data and Price-Cut Percentage
Expectations for new listings data were unmet last week, with figures hampered by seasonal variations. Nonetheless, the overall trajectory in 2024 signals an upward trend, albeit against the backdrop of historical lows, offering a nuanced perspective on the housing market’s health. Interestingly, the price-cut percentage, a barometer of market activity, softened in response to declining mortgage rates and increased demand—a favorable trend that bodes well for prospective buyers.
Looking Ahead: Housing Data and Fed Insights
In the forthcoming week, housing data remains at the forefront, with builder confidence and housing starts pivotal in gauging economic trajectory. As residential construction indicators mirror early COVID-19 era levels, observing builders’ responses to higher mortgage rates will be crucial in signaling potential downturns. Additionally, attention must be paid to the insights of Chicago Fed President Austan Goolsbee, a prominent figure known for his dovish stance on rising long-term rates, in illuminating the Fed’s future direction amidst evolving market conditions. Stay tuned for unfolding developments as we navigate the intricacies of the financial landscape.
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