Housing demand resilient even with higher mortgage rates

The holiday season is here, and despite higher mortgage rates last week, housing demand is displaying some festive resilience. Typically, we expect a decrease in activity with elevated rates, but a seasonal boost is helping the purchase application data over the last month. Additionally, our pending contracts are still reflecting double-digit year-over-year growth. Let’s look at this week’s Tracker data to see if this trend can continue for the rest of 2024.

Weekly pending sales

The weekly pending contract data from Altos Research gives us a great peek into real-time housing demand. As with most housing data, we’re currently in a seasonal volume decline, which is pretty standard this time of year. Mortgage rates picked up last week, though that hasn’t significantly impacted our pending contract data, which is showing some positive year-over-year growth when we compare it to 2022 and 2023. 

Remember, we’re coming from some of the lowest levels ever, so we should take these little bounces with a grain of salt. It’s encouraging to see us finding a firmer bottom, which I discussed on this recent HousingWire Daily podcast.

This is the weekly pending sales for last week over the previous few years: 

• 2024: 304,034
• 2023: 275,022
• 2022: 277,102

Purchase application data

The weekly data on purchase applications showed a week-to-week decline of 4%. The unadjusted data indicated a 30% gain, but we typically disregard that figure. On a year-over-year basis, the data remains positive, increasing 4%. Purchase applications look out 30-90 days before this housing demand hits the sales data.

Unlike our extremely low comparisons in October and early November, the current data reflects a legitimate growth trend year over year. I would be surprised if we see another positive year-over-year result next week, but purchase applications have performed better than average. Traditionally, the seasonal housing push would start after the second week of Januar, but in the last few years, it has started in November. 

On the weekly data, since mortgage rates did rise recently, this is what the data looks like 

• 5 positive prints
• 4 negative prints

When mortgage rates were running higher earlier in the year (between 6.75%-7.50%), this is what the purchase application data looked like:

• 14 negative prints
• 2 flat prints
• 2 positive prints

When mortgage rates started falling in mid-June, here’s what purchase applications looked like:

• 12 positive prints 
• 5 negative prints
• 1 flat print

With how higher rates have impacted the data this year, it will be interesting to see if we have a negative print next week because rates do matter, but for now, there is some slight growth year over 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 10-year yield experienced a sharp increase last week, rising from 4.13% to 4.40% in anticipation of the upcoming Federal Reserve meeting. Additionally, the Atlanta Fed reported that U.S. economic growth is expected to exceed 3% again. We are still observing a downward trend in bond yields, with current levels testing the upper channel before the Fed meeting, indicating that the upcoming week will be interesting.

While mortgage rates have increased, the rise has not been as sharp as anticipated, as mortgage spreads have improved this week. Over the past two years, housing demand has improved when the 10-year yield falls enough to get mortgage rates near 6%.

Mortgage spreads

I cannot emphasize enough how positive this year’s mortgage spreads have been for the housing market and the general economy. If spreads had remained as unfavorable as last year, we would likely see fewer housing permits and starts, and we might have faced a loss of residential construction jobs in certain parts of the U.S.

Despite the recent increase in the 10-year yield, mortgage rates have performed better than in the past because the spreads have not worsened. If we had the worst spreads from last year, mortgage rates would be about 0.60 percentage points higher today. Conversely, if mortgage spreads were back to normal, we could expect mortgage rates to be lower by approximately 0.73% to 0.83%. Last week is a good example: even when rates increased, this year has proven to be much better than last year due to more favorable spreads.

Jobless claims

This is the first time I am including jobless claims data in the weekly tracker. It’s important because one key factor that could push rates below my forecasted 5.75% threshold is a potential downturn in the labor market. Specifically, if jobless claims on the four-week moving average rise toward 323,000, that could be significant

Last week, we observed a notable spike in the index, which many attributed to the holidays disrupting labor data. However, here are the latest numbers: the number of individuals filing for benefits for the first time after job separation increased by 17,000, reaching 242,000. Meanwhile, the four-week moving average rose by 5,750, bringing it to 224,250.

Weekly housing inventory data

We are experiencing a seasonal decline in housing inventory, which seems normal. The positive outlook for housing in 2024 is that we have established a good buffer with our inventory data — something we could not do from 2020-2023. I am happy with the inventory growth we are seeing in 2024.

• Weekly inventory change (Dec. 6-Dec. 13): Inventory fell from 690,015 to 682,150
• The same week last year (Dec. 7-Dec. 14): Inventory fell from 546,424 to 538,767
• The all-time inventory bottom was in 2022 at 240,497
• The inventory peak for 2024 so far is 739,434
• For some context, active listings for this week in 2015 were 1,050780

New Listings

New listing data last week showed its typical seasonal decline, but we also witnessed the familiar Thanksgiving bounce-back that occurs annually. Thanksgiving came one week later this year, hence the one-week delays on a lot of weekly housing data. It’s encouraging to see some growth in this data line, even though it fell short of my target levels this year. Overall, this is a positive development for the U.S. It was a very negative story in 2023 when new listings were trending at the lowest levels ever recorded in history

New listings data for last week:

• 2024: 45,284
• 2023: 39,613
• 2022: 34,973

Price-cut percentage

Here are the price-cut percentages for last week compared to previous years:

• 2024: 38.1%
• 2023: 38.%
• 2022: 41%

The week ahead: It’s Fed week, with tons of other reports too

We have an eventful week ahead, highlighted by the Fed meeting and important economic reports. When it comes to the Fed, the language they use this week is crucial. There is widespread expectation for a 0.25% rate cut, but many also anticipate that the Fed will be cautious for 2025 unless the economic data suggests a need to speed up.

This week we can also expect Global PMI reports, bond auctions, the builder survey index, housing starts, existing home sales, retail sales and more. Given that the 10-year yield has already made a significant move in the past week, observing how the market reacts to the Fed’s announcements and the economic reports will be essential.