Why housing demand is now showing year-over-year growth

We have had three weeks of positive year-over-year growth in both purchase application data and weekly pending contract data, with last week showing a noticeable jump from last year. Now the dose of reality: last year at this time mortgage rates were heading toward 8%, and even though 2023 showed record low sales levels, it got worse with 8% rates. So, context is critical with housing data, especially in October. Let’s look at this week’s numbers.

Weekly pending sales

Below is the Altos Research weekly pending contract data to show real-time demand. This data line is very seasonal, as we can see in the chart below, and we remember how high mortgage rates were at this time last year. We are now showing growth versus 2023 and 2022 data in this data line, but context is key. 2022 sales had the fastest crash ever and 2023 home sales were at record low levels, so take the growth in context with those two truths. 

This is the weekly pending sales for last week over the previous few years: 

2024: 357,675

2023: 324,675

2022: 343,942

Purchase application data

The winning streak of purchase application data just ended as mortgage rates shot up higher. Before rates rose, we had six straight weeks of positive data and then one flat week. Last week, purchase apps were down 7% week to week, still showing year-over-year growth, but we can see the impact of higher rates in this week’s data.

When mortgage rates were running higher earlier in the year (between 6.75%-7.50%), this is what the purchase application data looked like:

14 negative prints

2 flat prints

2 positive prints

Here’s purchase app data since mortgage rates started fallling in mid-June:

12 positive prints 

6 negative prints

1 flat

3 straight positive year-over-year growth prints

We will track this data to see the damage done by rates moving higher recently. History has shown us that when rates move higher, it shuts down the demand data growth.

10-year yield and mortgage rates

My 2024 forecast included:

A range for mortgage rates between 7.25%-5.75%

A range for the 10-year yield between 4.25%-3.21%

I forecast channel ranges with mortgage rates and the 10-year yield because we can all follow the economic data that matters together and look for crucial inflection points with rates. This is the slow dance between the 10-year yield and 30-year mortgage rates I often discuss. 

I have a crucial line in the sand for the 10-year yield around 3.80%. We need weaker economic data to go below this or even lower. We got that when the jobs week data showed a softer labor market, but a lot of recent data lines have beaten expectations. I explained this in detail in this HousingWire Daily podcast.

With the recent economic data such as retail sales and jobless claims being positive, we ended last week with the 10-year yield at 4.08%.

Mortgage spreads

The mortgage spread story has been positive in 2024, whereas it was negative in 2023. We have seen a big move already this year; mortgage rates would have been much higher today without the spreads improving. Unfortunately, with the recent spike in mortgage rates, the spreads have gotten slightly worse. Still, if I took the worse spreads from last year, mortgage rates would be 0.72% higher today. If mortgage spreads were back to normal levels, you would see mortgage rates lower by 0.71% – 0.81%.

Weekly housing inventory data

Five weeks ago, we had the best week of inventory growth in 2024 as we hit my model range even without higher mortgage rates. Two weeks ago, inventory growth went slightly negative, with some impact due to the hurricanes on the East Coast. Last week, we had some inventory growth of 7,024 homes. While this isn’t in my inventory growth model of 11,000-17,000 with higher rates, it was a good week for active inventory growth.

Weekly inventory change (Oct 11-Oct. 18): Inventory rose from 732,410 to 739,434

The same week last year (Oct. 12-Oct. 19): Inventory rose from 546,450 to 554,350

The all-time inventory bottom was in 2022 at 240,497

The yearly inventory peak for 2024 is 739,434

For some context, active listings for this week in 2015 were 1,171,775

New listings data

New listings data has been another positive story in 2024, as we needed more sellers! I didn’t hit my minimum target of 80,000 during the seasonal peak months — I was off by 5,000 — but I see it as a win because even though 2024 was the second-lowest new listings data year ever, it did bounce from 2023, which was the lowest level ever. 

2024: 60,361

2023: 56,772

2022: 57,762

Price-cut percentage

In an average year, one-third of all homes take a price cut — this is standard housing activity. Rising mortgage rates last year and this year have created a growing number of price cuts, especially with inventory rising. When mortgage rates fell recently, the price-cut percentage cooled down. 

A few months ago, on the HousingWire Daily podcast, I said price-growth data would cool down in the year’s second half. The price-cut percentage data is below 2022 levels and risks an earlier seasonal curve lower than 2022 and 2023. We need to see if higher mortgage rates change this data line before we see the seasonal downtrend in inventory. I have to say I am a bit surprised at how well pricing has held up in our weekly data recently. 

Here are the price-cut percentages for last week over the previous few years:

2024: 39.5%

2023: 38%

2022: 43%

The week ahead: Fed speeches and home sales data

This week, we will have more speeches by Fed presidents, plus existing home and new home sales data. Remember that the recent housing starts data and this week’s existing and new home sales reports won’t account for recent higher mortgage rates. This is why we focus on our weekly housing data, which shows that higher mortgage rates already zapped the purchase application data. I discussed this on CNBC on Friday, saying that we don’t need 3% or 4% mortgage rates to grow sales from these depressed levels, but we do need rates to get to 6% and stay there.