Are mortgage rates about to fall?

Mortgage rates and the bond market have fallen a bit recently and the spreads between the 10-year yield and 30-year mortgage rate have improved over last year’s levels. In the past two years, demand has always picked up whenever mortgage rates have moved lower with some duration. Even last week, purchase apps grew week to week. What should we expect this week and what should we focus on for the rest of the year?

Although the 10-year yield and mortgage rates have moved lower recently, they have been in an uptrend higher since the early part of the year. On Friday, the closing 10-year yield was 4.50% and bond yields fell after the softer labor data report. To see mortgage rates drop and stay lower, the bond market needs to know the labor market is getting softer.

10-year yield and mortgage rates

For my work, I focus on the 10-year yield and what can drive that higher and lower. The 10-year yield and 30-year fixed mortgage rates are in a long-term slow dance — they move together. But since 2022, the spreads between them have gotten worse, meaning mortgage rates are abnormally higher than they should be. However, this year, even though the spreads are still historically bad, they’ve improved over last year, which is a plus for the housing market. 

Traditionally speaking, the spreads between the 10-year and mortgage rates is 1.60%-1.80%. Right now, the difference between them is 2.60%. However, compare that to the worst levels last year, when the spread got as high as 3.10%. That’s a 0.50% difference in rates.

For the rest of the year, it’s all about the labor market. The bond market has tried three times to front-run a recession or weaker economic data by pushing long-term yields lower, only to be rebuffed by labor data not breaking. So, keep an eye on weekly jobless claims data, and all the jobs report reports that come out at the end of the month. You can find the latest update on that data line here.

Purchase application data

Purchase application data was positive week to week but still down year over year. We are seeing better positive sales growth on our weekly pending sales data. This can be partly due to a higher percentage of cash buyers in the sales mix that purchase applicatoins won’t account for. Also, purchase application data can be a funky data line to sometimes track the percentage. I will talk about this on the HousingWire Daily podcast on Monday. 

Since November 2023, when mortgage rates started to fall, we have had 12 positive prints versus nine negative prints and two flat prints week-to-week. Year to date, we have had six positive prints, nine negative prints and two flat prints.

Weekly housing inventory data

Last week was another week that missed my inventory growth model with higher rates. I am always looking for weekly inventory growth between 11,000 and 17,000 when rates are over 7.25%. Rates have fallen recently and inventory growth was higher last week than the previous week. However, I anticipated a bit more kick than the increased inventory of 8,727 that we got. So, we shall see how next week looks. Let’s remember, it’s Mother’s Day weekend this weekend. Next week, inventory should surpass the highest levels we saw last year. 

  • Weekly inventory change (May 3-May 10): Inventory rose fro  559,744 to 568,471
  • The same week last year (May 5-May 12): Inventory rose from 420,489 to 421,101
  • The all-time inventory bottom was in 2022 at 240,194
  • The inventory peak for 2023 was 569,898
  • For some context, active listings for this week in 2015 were 1,109,727

New listings data

One of the most encouraging housing developments for 2024 — in stark contrast to 2023 — is the year-over-year growth in new listings. This is a significant shift, considering 2023 marked the lowest level ever recorded. The fact that this data line is now positive is a very promising sign for the housing market. While the growth rate is slightly lower than anticipated for this year, it’s still a step in the right direction. Despite a decline in the past week, we are maintaining positive year-over-year growth.

Here’s the new listings data for last week over the last several years:

  • 2024: 68,843
  • 2023: 61,911
  • 2022: 73,107

Price-cut percentage

In an average year, one-third of all homes take a price cut — this is standard housing activity. When mortgage rates increase, demand falls, and the price-cut percentage grows. When rates drop and demand improves, the percentage falls.

The percentage of price cuts is growing year over year as inventory is growing. The slope of the curve in 2024 is much slower than we saw in 2022. In 2022, we saw real price declines in the second half of the year as home sales were crashing. They’re not crashing anymore so the action with the price cut percentage data is a bit slower than at that time, but growing year over year 

  • 2024: 33.7%
  • 2023: 30%
  • 2022: 21%

The week ahead: Inflation week and housing starts

It’s that time again: it’s another inflation week with CPI and PPI inflation reports. Of course, some of the inflation reports have disappointed the Federal Reserve, so we will keep a close eye on the key numbers in these reports. We also have housing starts data, which is key to the labor markets as 5-unit permits have been in a recession for some time now. I want to see what the apartment completion data looks like because labor is at risk once those apartments under construction are completed. Since we focus so much on the labor data and the direction of mortgage rates, tracking construction workers in each economic cycle is essential.

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