– Purchase application data has shown positive growth after a decrease in mortgage rates
– Year-to-date, there have been more positive prints than negative prints in purchase application data
– Mortgage rates and the 10-year yield have fluctuated, with mortgage rates currently higher than last year
– The growth rate of inflation has cooled down, leading to speculation of rate cuts in 2023
– Weekly housing inventory data has not seen significant growth despite higher rates
– New listing data is forming a bottom, but still at historically low levels
– The percentage of homes with price cuts is lower than last year, even with higher home prices and rates
– The leading economic index and existing home sales report are upcoming economic data points to watch
– The holiday week may see volatility in the bond market and mortgage rates.
Purchase application data
Last year, when mortgage rates fell from 7.37% to 5.99%, we got three good months of positive purchase application data until the first week of February before mortgage rates started to run higher from 6%-8%. We need to focus on the data weekly to see if lower mortgage rates can once again spur purchase applications because we are working from such historically low levels that it doesn’t take much to move the needle.
So far, we have had back-to-back positive prints, and the year-over-year decline is at the lowest level all year long. However, this is due to extremely easy year-over-year comps. Let’s see how this looks in the critical time from the second week of January to the first week of May 2024. Remember, application data looks out 30-90 days before it hits the sales data.
Purchase application data was up 3% versus last week, making the year-to-date count 20 positive prints, 23 negative prints, and one flat week.
Mortgage rates and the 10-year yield
The 10-year yield ranged from a high of 4.69% to a low of 4.38% last week, and mortgage rates went from a high of 7.58% to a low of 7.36%. More importantly, the CPI data came in light, and it looks like that might have been the final nail in the coffin for the Federal Reserve in terms of raising rates as the growth rate of inflation has cooled down enough that the market is now pricing in a few rate cuts in 2023.
Still, the 10-year yield and mortgage rates are higher today than last year, and the inflation growth rate is lower than the peak inflation growth rate in 2022. I talked about how much lower mortgage rates can go from here in this recent podcast. As I have stressed, if the market believes the Fed is done with rate hikes, history says the next big move is lower bond yields and mortgage rates.
Weekly housing inventory data
As someone who believes that housing inventory will grow with higher rates, I was hopeful that when mortgage rates got above 7.25% we would have a few weeks this year of 11,000-17,000 growth, which isn’t a lot. I failed 100% of the time so far.
We would usually be in a seasonal decline by now, but inventory growth has recently picked up due to higher rates. So, higher rates did their thing, just not big enough for my taste. Mortgage rates have fallen, so this is something to consider next year if they keep falling because that traditionally means flat to lower inventory data, assuming that the economy is still expanding.
- Weekly inventory change (Nov.10-Nov. 17): Inventory rose from 566,941 to 569,898
- Same week last year (Nov. 11-Nov. 18): Inventory fell from 572,347 to 569,571
- The inventory bottom for 2022 was 240,194
- The inventory peak for 2023 so far is 569,898
- For context, active listings for this week in 2015 were 1,120,115
The one positive inventory story for 2023 is that new listing data — while trending at the lowest levels ever in history — didn’t create a brand new low level, no matter how high mortgage rates rose. Even though we saw a noticeable decline week to week, new listings are positive year over year, still trending at the lowest levels ever. I talked about how new listings data is forming a bottom on CNBC recently.
Traditionally, one-third of all homes take price cuts before they sell. When mortgage rates rise, and demand decreases, the percentage of homes with price cuts usually increases. This is why it’s so crazy that this year, even with higher home prices and rates recently, we haven’t been able to catch up to price cuts in 2022 when home prices were falling month to month.
Even as mortgage rates got to 8%, we have consistently been 4% below last year’s levels of price cuts. If mortgage rates fall more over the next six months, this data line will be exciting as we head into Spring 2024.
- 2023: 39%
- 2022: 43%
- 2021: 28%
The week ahead: Leading Economic Index and existing home sales
This week is a holiday with Thanksgiving, but we have some important economic data coming up: the leading economic index and the existing home sales report. We should see a pick up in the monthly supply of homes with mortgage rates rising as much as it did for this report. People will wait to see how Black Friday sales perform, but Black Friday doesn’t mean the same thing it did 30 years ago. We will see if the bond market and mortgage rates are volatile in a holiday-light trading week.
Property Chomp’s Take:
Purchase Application Data: Can Lower Mortgage Rates Boost Numbers?
Last year, mortgage rates experienced a significant drop from 7.37% to 5.99%. This led to three months of positive purchase application data until the first week of February when mortgage rates started to rise again, ranging from 6% to 8%. Given the historically low levels we are working with, even a slight change can have a significant impact on the data.
Currently, we are seeing back-to-back positive prints in purchase application data, and the year-over-year decline is at its lowest level throughout the year. However, it’s important to note that this is mainly due to extremely easy year-over-year comps. To get a clearer picture, we need to observe the critical time period from the second week of January to the first week of May 2024. It’s worth mentioning that application data tends to reflect sales data within a 30-90 day period.
In the latest update, purchase application data increased by 3% compared to the previous week, resulting in a total of 20 positive prints, 23 negative prints, and one flat week year-to-date.
Moving on to mortgage rates and the 10-year yield, last week saw the 10-year yield fluctuating between a high of 4.69% and a low of 4.38%. In parallel, mortgage rates ranged from a high of 7.58% to a low of 7.36%. Notably, the recent Consumer Price Index (CPI) data came in lower than expected, which may have influenced the Federal Reserve’s decision to hold off on further rate hikes. In fact, the market is now pricing in a few rate cuts in 2023. Despite this, both the 10-year yield and mortgage rates remain higher than last year, while the inflation growth rate is lower than its peak in 2022.
Considering the potential for lower mortgage rates, it is interesting to explore how much further they can decrease from their current levels. Historical trends indicate that if the market believes the Fed is done with rate hikes, the next significant move would be towards lower bond yields and mortgage rates.
Shifting our focus to weekly housing inventory data, there was an expectation that housing inventory would grow with higher rates, particularly when they surpassed 7.25%. However, this expectation has not been met so far. While we would typically expect a seasonal decline at this time, inventory growth has recently picked up due to higher rates. If mortgage rates continue to fall, it could potentially lead to flat to lower inventory data, assuming the economy continues to expand.
In 2022, the seasonal peak for housing inventory occurred on October 28th, according to Altos Research. Looking at recent figures, inventory rose from 566,941 to 569,898 between November 10th and November 17th. Comparatively, during the same week last year, inventory fell from 572,347 to 569,571. For context, the inventory bottom for 2022 was 240,194, while the inventory peak for 2023 so far is 569,898. In 2015, active listings for this week were 1,120,115.
One positive aspect of inventory data in 2023 is that new listing data, although trending at historically low levels, did not reach a new record low despite the rise in mortgage rates. While there has been a noticeable decline week-to-week, new listings are still positive year over year, indicating that they are forming a bottom, as discussed in a recent CNBC segment.
Traditionally, about one-third of all homes experience price cuts before they are sold. When mortgage rates rise and demand decreases, the percentage of homes with price cuts tends to increase. However, this year has been unusual, as even with higher home prices and rates, we have consistently seen 4% fewer price cuts compared to last year. If mortgage rates continue to fall over the next six months, this data line will be particularly interesting to watch as we head into Spring 2024.
Looking ahead to the coming week, we have the leading economic index and existing home sales report scheduled. With Thanksgiving being a holiday, trading may be lighter, but these economic indicators can still provide valuable insights. Given the rise in mortgage rates, we might anticipate an increase in the monthly supply of homes. Additionally, Black Friday sales could influence market sentiment, although its significance has evolved over the years. It will be interesting to see if the bond market and mortgage rates experience volatility during this holiday period.