Is mortgage demand really picking up?

Are we seeing the start of a market shift in mortgage demand? Notably, mortgage rates have been gradually declining, and we’ve observed back-to-back positive weeks in purchase application data for the first time since mid-March. While I typically prefer to see a sustained growth of 12-14 weeks before concluding there’s been a sea change, the low bar in purchase application data suggests that even a slight change could push demand higher if mortgage rates keep falling. 

Let’s dig into the data to understand these developments better.

Purchase application data

When mortgage rates fell more than 1% lower in late 2022 and 2023, we saw a sustained bounce higher in purchase application data, which eventually lead to a higher monthly sales print. Then rates moved higher, pushing demand back near the lows of this economic cycle. I wrote about that and the most recent existing home sales report here.

As mortgage rates trend lower again and some of the labor data is at risk for more downside, it’s time to keep a close eye on how much demand lower rates will generate if they fall more over the next 6-12 months. For now, we just had back-to-back weeks of positive growth, with mortgage rates still around 7%.

Since the onset of falling mortgage rates in November 2023, we’ve seen 14 positive prints, 13 negative prints and two flat prints in the week-to-week data. However, as mortgage rates began to rise earlier this year, we observed a decline in demand. The year-to-date data for 2024 is unfavorable, with 8 positive prints, 13 negative prints and two flat prints. This suggests that we’re not experiencing real mortgage demand growth at high rates and the fluctuations we see in the data are merely rebounds from low levels.

10-year yield and mortgage rates 

Considering the softness in the economic data last week, with retail sales and housing starts at COVID-19 recession levels, which I wrote about here, the 10-year yield held up well. This means that it will take more weakness in the economic data for the 10-year yield to break under 4.20% and head lower. Mortgage rates didn’t move too much either way.

Mortgage spreads

The spread between the 30-year mortgage rate and the 10-year yield has been an issue since 2022 and things got worse after the March 2023 banking crisis. However, this year, spreads have improved.

If we took the worst levels of the spreads from 2023 and incorporated those today, mortgage rates would be 0.47% higher. While we are far from being average with the spreads, the fact that we have seen this improvement is a plus this year.

Weekly housing inventory data

Inventory hit another one of my target levels this week, making it four times this year! My rule of thumb has been that inventory should have some weekly positive prints between 11,000 and 17,000 as long as rates are above 7.25%. Last week we saw positive inventory growth of 13,593!

  • Weekly inventory change (June 14 -June 21): Inventory rose from 620,539 to 634,132
  • The same week last year (June 16 June 23), Inventory rose from 451,808 to 460,668
  • The all-time inventory bottom was in 2022 at 240,497
  • This week is the inventory peak for 2024 at 634,132
  • For some context, active listings for this week in 2015 were 1,180,937

New listings data

Another positive story for 2024 has been the growth in new listing data, as most sellers are buyers. While we aren’t back to the usual trend we had between 2013 and 2019, the fact that we had growth is a plus. Now, context is critical; 2023 new listings data was at the lowest levels ever and 2024 looks to be second in the book. However, I will take this small victory.

The only thing about 2024 is that the growth rate is a bit slower than I was anticipating and it doesn’t look like I am going to get the bare weekly minimum for a seasonal peak of 80,000 this year. Here are the new listings for last week over the last several years:

  • 2024  71,678
  • 2023: 62,374
  • 2022: 83,347

Price-cut percentage

In an average year, one-third of all homes take a price cut — this is just traditional housing activity. When mortgage rates increase, demand falls and the price-cut percentage grows. When rates drop and demand improves, the price-cut percentage can fall. This data line is seasonal, and we have seen consistent year-over-year price-cut percentage growth since the end of March. This is much different than what we saw in 2023L even when mortgage rates headed toward 8%, the price cut percentage data was negative year over year. Of course last year, we had less inventory. 

A few weeks ago, in the HousingWire Daily podcast I discussed that the price cut data will cool down in the second half of the year in. Here are the price-cut percentages for last week over the previous few years:

  • 2024: 37%
  • 2023: 32%
  • 2022: 29%

Pending sales

Below is our weekly pending contract data year-over-year to show real-time demand. With more sellers who are buyers, we have a tad more demand this year. This contract data will grow if mortgage rates head lower and stay lower. This is why it’s vital to follow the 10-year yield, mortgage purchase apps,and weekly pending contract data to get real-time clues on demand well ahead of the existing home sales reports. 

  • 2024: 396,153
  • 2023: 385,699
  • 2022: 449,777

The week ahead: Home prices, home sales and Fed speeches

This week, we have a few housing reports: New home sales, which is critical to the economic cycle; pending home sales; and two home-price index reports. We have a lot of Fed presidents speaking and it will be increasingly more interesting to see if we see any changes to their verbiage.

The labor market in America is no longer tight, even Fed Chair Powell finally admitted that some of the labor data are back to pre-COVIDC-19 levels. To me, this lays the groundwork so that some Fed members who don’t want to see a recession have the ability to sound more dovish if the labor data gets worse.

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