Federal Reserve Chairman Jerome Powell played the Grinch to the housing market last week and sent mortgage rates soaring after his comments on the housing market. Fed presser on Wednesday. Nevertheless, we had positive data on existing home sales, purchase applications and our weekly current contract figures. The total number of active listings is experiencing the traditional seasonal decline, but with less than two weeks left in the year, it’s clear that America’s homebuyers are ready. However, we need lower mortgage rates to grow revenue faster in 2025.
Buy application data
Purchase request data rose 1% weekly and is up 6% year-over-year, even with a higher bar to work from. Over the past two years, we’ve seen an increase in purchasing apps in November and December, both when mortgage rates fell. However, this year mortgage rates rose during this period. I think the seasonal demand for purchasing apps now happens in November and December, which also explains the stronger data this year and in recent years.
Apps purchased in the last 10 weeks:
The past few weeks have shown a positive year-over-year growth trend, as shown in the chart below. I usually ignore the last two weeks of the year, and the Association of Mortgage Bankers will not report these figures until the new year. I would therefore like to conclude that 2024 ended the year on a slightly positive note.
When mortgage rates were higher earlier this year (between 6.75%-7.50%), the purchase application data looked like this:
- 14 negative prints
- 2 flat prints
- 2 positive prints
When mortgage rates started falling in mid-June, this is what it looked like:
- 12 positive prints
- 5 negative prints
- 1 flat print
With the above data on how the market responded to higher mortgage rates, I can understand some people’s surprise at our Housing Market Tracker data. The last existing home sales report was also positive; which I wrote about here.
Weekly ongoing sales
The latest weekly current contract data from Altos Research offers an exciting glimpse into the real-time dynamics of housing demand. While it’s common to see a seasonal dip in volume at this time of year, there is a bright spot: we’ve seen solid year-over-year growth when we compare our data to 2022 and 2023.
This positive trend indicates that, despite the typical slowdowns, the housing market is showing some promising resilience as we approach the end of the year! These are the weekly open sales for the past week over the past years:
- 2024: 293,555
- 2023: 267,033
- 2022: 263,937
10-year interest rate and mortgage interest rate
My prediction for 2024 included:
- A mortgage interest rate range between 7.25%-5.75%
- A bandwidth for the ten-year interest rate between 4.25% and 3.21%
The past week was tumultuous for mortgage rates. Chairman Powell’s statements caused a ripple effect in the market. 10-year yields shot up after the Fed’s press release and then continued to rise the more Grinch Powell spoke.
However, after the inflation report weakened, bond yields fell and mortgage rates also fell. Nevertheless, it was still a challenging week for both yields and the 10-year yield.
Mortgage spreads
The unsung hero of the housing market in 2024 has been the improvement in mortgage spreads. What was worrying last year has become a positive story this year. If mortgage spreads had not improved in 2024, our discussions about housing today would be very different – especially given the events of last week.
Mortgage rates would be close to 8% if we had seen the peak of negative spreads in 2023. In contrast, if mortgage spreads were at normal levels, we might expect mortgage rates to be about 0.72% to 0.82% lower. Last week it emerged that even with rising interest rates, the housing market has done much better this year than last year, thanks to more favorable spreads.
Weekly home inventory data
As we enter the final weeks of the year, we usually see a decline in housing stock. However, I’m excited about the story behind the current market: the stock has grown from the depressed levels we experienced in early 2022.
This shift has led to a much healthier housing market that has the potential to thrive for years to come. Moreover, we can deal with lower mortgage rates without returning to barbarically unhealthy conditions. It is a positive trend that bodes well for the future.
- Weekly Inventory Change (December 13 – December 20): Inventory decreased from 682,150 Unpleasant 667,466
- Same week last year (December 14 – December 21): Stock fell from 538,767 Unpleasant 528,601
- The lowest inventory level of all time was in 2022 240,497
- The inventory peak for 2024 so far is 739,434
- For some context, the number of active mentions for this week in 2015 was 1,013,245
New offers
Data on new listings shows a typical decline for this time of year. While I didn’t hit my forecast levels or the 80,000 target during the seasonal peak months this year, I came close and was only about 5,000 short. I still think this is a positive result. Over the past five years, the weekly number of new listings has fallen between about 30,000 and 90,000. In the years of the housing bubble, by contrast, the range was between 250,000 and 400,000.
New ad data from the past week from past years:
- 2024: 39,430
- 2023: 36,897
- 2022: 31,793
Price reduction percentage
In an average year, it is common for around a third of all homes to see a price drop, reflecting the usual dynamics of the housing market. Rising mortgage rates often lead to an increase in the percentage of homes, causing their prices to fall. On the other hand, when mortgage rates fall, we typically see an increase in demand, which often causes home prices to stabilize or even rise, as we have recently experienced with falling interest rates.
My house price forecast for 2024 was a growth rate of 2.33%, but it appears this estimate may be too low. Initially, I assumed that the seasonal price decline we typically see in the second half of each year would continue, but recent data shows that home prices have increased. As a result, my 2024 forecast may be too low.
Here are last week’s price reduction percentages compared to previous years. Let’s see how this fits in with current market sentiment:
- 2024: 37.4%
- 2023: 36.%
- 2022: 40%
The coming week: Christmas week and sales of new houses
Merry Christmas week everyone! This week sees the release of the new home sales report, which has become a major factor for the economy and the Fed as we look to 2025. I shared some thoughts on this in my recent article on the start of housing construction. Oh, and don’t forget there are a few bond auctions happening this week too! Enjoy the festivities!
