Are lower mortgage rates having a positive impact on housing demand figures? Some people have been very disappointed with the data so far, so I wanted to dive into this week’s tracking data to see how lower rates are affecting these key data lines. Let’s take a look at two of the data lines today and see if we can spot a positive trend.
Purchase application data
I have always believed that for the existing home sales market to truly grow and remain stable, we need mortgage rates below 6% and a certain term. I focus on this CNBC When asked this question earlier this year.
Mortgage rates dropped to 6% by the end of 2022, giving us 12 weeks of positive data and a massive existing home sales report. But then interest rates rose and sales fell. Mortgage rates fell somewhat by the end of 2023, but were nowhere near 6% and had only eight weeks of positive growth. Then mortgage rates rise again and sales fall. My strong belief in interest rate models forced me to say earlier this year that unless interest rates fell, monthly home sales numbers would peak.
How about buying the app now?
Buying apps is highly seasonal; I typically weigh these after the second week of January through the first week of May. Typically, volume always drops after May. However, the past two times, rates have dropped and we’ve seen an increase in app-buying activity in November, closer to what we see in the seasonal spring months. What now?
With mortgage rates falling again, some are expecting a situation similar to what we saw in late 2022 and 2023. Over the past nine weeks we have only Five positive Purchase application week and four negations. Calculated as a percentage it is cumulative 14% relatively 12% During these four negative weeks. For now, lower interest rates are having only a minor impact on demand.
Recent pending home sales data has been good as the first few weeks of June were strong. So, nothing major is actually happening, but it’s still a positive trend compared to earlier this year when mortgage rates were close to 7.5%.
Weekly housing inventory data
The best story for housing in 2024 is the growth of housing stock. We are still far from the extremely unhealthy levels of 2022, when we Only 240,000 Homes available for sale in March of the same year. Now, my weekly inventory growth model is simple: Higher interest rates will push up inventory if they fail to create demand for home loans.
As long as interest rates remain high, especially 7.25% and above, inventories will remain 11,000 and 17,000 per week. That’s average for me, and has happened six times so far this year – perfectly in line with the model. We haven’t broken through yet 17,000 in this year’s weekly data. But what about the decline in interest rates we’ve seen over the past three weeks?
Over the past three weeks, I think inventory growth has been healthy, but even with lower interest rates, I haven’t been able to hit my weekly growth target. That’s not a big deal; it’s still a positive year for inventory growth.
Over the past three weeks, inventory has grown to:
- Last week: 9,024
- Previous week: 6,482
- 2 weeks ago: 8,883
We’re getting closer to inventory seasonality, and no matter what happens in the final months of 2024, inventory growth is a plus.
in conclusion?
While we haven’t seen super positive growth in housing demand with lower interest rates, we have seen growth in refinancing. Here’s what I discussed recently on this podcast: It’s a shallow bar showing growth in the material, but we do get some lower ratios.
As for the purchase application data, it will be critical to watch for the rest of the year if mortgage rates remain below 7% and continue to move lower. The closer we get to the end. During the seasonal housing period, if rates stay low, we should see year-over-year growth in app purchases, but that’s only because rates were the bottom line last year when rates hit 8%. We’ll be keeping a close eye on this, as well as another crucial variable: mortgage spreads.
If we had an average spread, today’s mortgage rate would be 5.5%, and if the 10-year yield fell, we could get a low mortgage rate of 5%, and then the average spread would be below 5%. For now, we’ll be watching one week at a time as the Fed begins cutting interest rates and pays closer attention to the state of the U.S. economy.
