Lower mortgage rates attract more home buyers

An often misplaced premise that I see on social media is that lower mortgage rates do nothing for housing demand. That’s okay: very few people look at the data without an agenda. However, the purpose of this tracker is to show you evidence that lower rates have already changed housing data. So let’s look at the data together.

Buy application data

First, buying apps is the quickest way to look for positive or negative data on higher or lower mortgage rates. Purchasing apps are also very seasonal. The volume curve comes at the beginning of the year and traditionally total volumes drop after May – this happens every year. So we have to look at the content of the data, that 30 to 90 day outlook before it goes into the sales data.

Here’s what the weekly purchase request data looked like with interest rates rising, as of late January:

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

As you can see, this was a very negative year with the weekly filing data. Before rates started to rise, we had positive trending purchasing apps for about eight weeks, after which the data fell into a very negative curve.

Here’s what the weekly purchase data looks like since mortgage rates started falling in mid-June:

• 9 Positive prints
• 5 negative prints

So we went from terrible demand at the beginning of the year when mortgage rates were rising – from extremely low levels – to now almost double the positive weekly numbers compared to the negative numbers. This only happened because rates fell. If interest rates had continued to climb higher, those negative numbers would have remained intact for the entire year.

Now, new home sales have benefited more from lower rates than the existing home sales market: This trend in that data started more than two months ago. This article is intended to help you understand how to properly read the new home sales data, as that forward-looking tracking data is a bit different than the existing home sales market. More details about this can be found here.

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%

Mortgage rates are at their lowest level for 2024 and are not far away from the very lowest forecast I had for 2024, which was 5.75%. The 10-year yield has shown that it can break the pesky 3.80% key level with weaker labor data, but what now?

For interest rates to fall even further, we need more softness in economic data, or more easing Federal Reserve meeting in a few days. The third variable that could cause interest rates to fall further without much help from ten-year rates is mortgage spreads.

Mortgage spreads

One way to get mortgage rates down to the low end of my 2024 forecast, which is 5.75% or lower, is to improve mortgage spreads, and there is a lot of room for improvement here. You also need weaker economic and labor data. Or the Fed might soften and do a real pivot, not just a baby pivot.

If we took the worst levels of 2023 spreads and included them today, mortgage rates would be the same 0.58% higher now. While we are far from average in terms of spreads, the fact that we have seen this improvement this year is a plus.

Weekly home inventory data

Higher rates lead to more inventory. My model for the past two years has been simple; As long as mortgage rates remain above 7.25%, inventory should normally grow between 11,000 and 17,000 per week. This happened six times this year, while it didn’t happen once last year. Although the stock grew faster and longer last year thanks to higher mortgage rates, I never got the growth I was hoping for.

Now that mortgage rates have fallen, I haven’t been able to hit my model even once, which isn’t a surprise, but after back-to-back weeks of small inventory declines, we did see a recovery last week 10,014.

• Weekly Inventory Change (September 6 – September 13): Inventory increased from 703,646 Unpleasant 713,660
• Same week last year (September 7 – September 14): Stock rose from 509,892 Unpleasant 519,458
• The lowest inventory level of all time was in 2022 240,497
• The annual inventory peak for 2024 is 713,660
• For some context, the active listings for this week in 2015 were 1,201,529

New advertising data

Another positive data line this year is that data on new listings in 2023 has grown from its lowest level ever in history. Since most sellers are buyers, this data needs to return to normal before there can be any real, long-term sales growth. However, I missed my 2024 prediction of at least 80,000 new listings per week by about 5,000 this year during the peak seasonal months. But even with that missed call, the growth we saw in new listings data was a big positive in my view.

• 2024: 65,162
• 2023: 61,162
• 2022: 63,034

Price reduction percentage

In an average year, a third of all homes are reduced in price; this is the standard home activity. Rising mortgage rates last year and this year have led to increasing levels of price cuts, mainly as inventories have risen. This date line has lowered the price as rates have dropped. In my 2024 price forecast, I was on the shallow side of price growth, and would have been too low if mortgage rates hadn’t risen earlier this year to slow mortgage demand.

A few months ago I discussed on the HousingWire Daily podcast that price growth rates would cool off in the second half of the year. Here are last week’s price reduction percentages compared to recent years:

• 2024: 40.1%
• 2023: 37%
• 2022: 41%

Weekly ongoing sales

Below you will find the Alto’s research weekly ongoing contract data to reflect real-time demand. We see the seasonal decline in the data line, but there is some year-over-year growth. Remember, mortgage rates started moving toward 8% last year, so let’s look at the better year-over-year data with some context. In fact, I believe that some people will exaggerate year after year in the future.

• 2024: 357,254
• 2023: 345,137
• 2022: 390,335