Initial concerns about tariffs pushing mortgage rates up to 8% and reducing housing demand have been alleviated this week with promising news. The 10-year yield has stabilized at a crucial technical level and even reversed direction, leading to improved mortgage rates. Surprisingly, housing demand has remained steady despite higher mortgage rates.
While the increase in demand may not be substantial, it is a positive development worth celebrating. Let’s delve into the latest housing data to gain insights as we head towards the end of the year.
10-year yield and mortgage rates
My 2024 forecast included:
- A range for mortgage rates between 7.25%-5.75%
- A range for the 10-year yield between 4.25%-3.21%
The recent decrease in mortgage rates can be attributed to dynamics in the bond market and the sentiment among bond traders. The peak in the 10-year yield in 2023 was around 5%, and the downtrend from that level is still intact. As long as economic data doesn’t surprise on the upside, bond yields should stay away from 5%, keeping mortgage rates below 8%.
The Santa Claus rally concept refers to people buying the 10-year yield and driving mortgage rates lower, as observed in the last two years. We’ll see if a similar trend occurs this year.
Mortgage spreads
The improvement in mortgage spreads in 2024 has been significant compared to the challenges faced in 2023. Without this positive change, mortgage rates could have exceeded 7.50% by now.
Although spreads have slightly increased since mortgage rates began rising in September, they are still in a much better position than the peak levels of the previous year. Overall, the progress in the mortgage market is promising.
Weekly pending sales
The weekly pending contract data from Altos Research provides valuable insights into real-time housing demand. Despite higher home prices and mortgage rates, pending contracts have shown resilience, especially when rates were around 6%.
Last week’s pending sales data for various years:
- 2024: 317,080
- 2023: 296,615
- 2022: 299,312
The NAR’s pending home sales have caught up with year-over-year growth, reflecting a positive trend in the housing market.
Purchase application data
Recent purchase application data has shown unexpected growth, with a positive trend observed for the past seven weeks. This growth trend aligns with the proximity of mortgage rates to 6%.
When mortgage rates were higher earlier in the year, purchase applications reflected a negative trend. However, the trend reversed when rates started falling, indicating a positive correlation between rates and applications.
Weekly housing inventory data
Housing inventory typically declines at this time of year, with a peak of 739,434 in 2024. Despite the high inventory levels, year-over-year growth has been strong.
New listings data has shown a seasonal decline, with 2024 experiencing growth compared to the previous year. However, both 2023 and 2024 will be recorded as the lowest years for new listings in history.
The week ahead: Jobs week!
This week will be crucial for economic data, especially with job-related reports scheduled. The drop in yields has been notable, and it will be interesting to see the impact on mortgage rates. Stay tuned for updates on ISM data, bond auctions, and speeches from Fed presidents.