After last week’s work week, everything gets more interesting as each month passes. The labor market has softened but has not yet collapsed. As we approach the midpoint of the year, let’s take a look at last week’s numbers.
10-Year Yield vs. Mortgage Rates
Labor force data, an important driver of 10-year yields and mortgage rates, had a major impact on the market last week. After reaching key levels on the lower end, 10-year Treasury yields reversed course as Friday’s labor report not only beat expectations but also delivered strong wage growth data, pushing yields higher.
I have an in-depth analysis of jobs week, complete with charts, discussing the soft trends in the labor market. Still, the labor market hasn’t collapsed yet. Our upcoming HousingWire Daily podcast will delve into these reports in more detail, providing a comprehensive look at the market dynamics between the labor market and mortgage rates.
The chart below shows the 10-year Treasury yield before the jobs report; after the labor report, yields surged, ending the week at 4.43%.
mortgage spread
The spread between 30-year mortgage rates and 10-year yields has been an issue since 2022 and 2023, and things got worse after the March 2023 banking crisis. However, one piece of positive news for 2024 is that spreads are better this year than last year.
If we take the worst spread levels from 2023 and combine them with today, mortgage rates would rise by 0.48%. As a result, things could get even worse this year when it comes to mortgage rates. However, if spreads return to normal ranges, mortgage rates would fall 0.75%-1.00% today without any decline in the 10-year yield.
Purchase application data
The seasonality for purchasing application materials is over, as volumes typically begin to decline after May. However, we keep tracking this data line because if rates fall as they did in late 2022 and 2023, we will need to track weekly data.
Since mortgage rates began to fall in November 2023, we have had 12 positive prints, 13 negative prints and 2 flat prints every week. Once mortgage rates start rising in 2024, some of that demand is removed. As you can see below, the data so far in 2024 isn’t even positive: we have 6 positives, 13 negatives, and 2 flats. As we can see, with interest rates this high, we’re not getting any real mortgage demand growth, and the rebound we’re seeing in the data is coming from depressed levels.
Weekly housing inventory data
I must emphasize that the best story for 2024 is that active inventory and new listings data are growing. We urgently need to move away from historic lows in inventories and create a buffer for breathing room if interest rates fall. While the inventory didn’t hit my target growth number again, we’ve hit that level three times this year, which is a plus. If mortgage rates are high (7.25% or higher), our weekly inventory growth should be between 11,000 and 17,000. This week we only played 6,674.
- Weekly inventory changes (May 31-June 7): Inventories rising 604,922 arrive 611,596
- During the same week last year (June 2 to June 9), inventories rose 437,007 arrive 443,749
- Historical inventory bottom occurs in 2022 240,194
- This week is peak 2024 inventories 611,596
- For some purposes, active listings this week in 2015 were 1,165,714
New listing data
It’s not shocking to see a traditional rebound in new listings following the Memorial Day weekend decline. However, the real story is that we saw year-over-year growth, which is a plus. It doesn’t look like I’m going to hit my hypothetical simple goal of 80,000 new listings. I had hoped that we would even reach over 95,000 listings this year, which has been more common over the past decade, but I ran out of time before the seasonal decline in new listings. Here are the new slates from last week over the past few years:
- 2024 72,061
- 2023: 63,001
- 2022: 85,068
Price reduction percentage
On average, one in three homes loses price every year—standard housing activity. When mortgage rates rise, demand falls and the price reduction percentage increases. When interest rates fall and demand improves, the price reduction percentage may decrease. This data line is highly seasonal, and since the end of March we’ve seen continued year-over-year growth in markdown percentage.
This is one of the reasons we will see house prices start to cool down from the start of the year. I recently discussed this on the HousingWire Daily podcast and explained why I believe this is the case. Here are last week’s price reduction percentages over the past few years:
- 2024: 36%
- 2023: 31%
- 2022: 26%
for sale
One of the new data lines we will start incorporating into the tracker is Altos’ pending contracts data – this will give a better idea of future sales. Below, you can see a slight year-over-year increase in weekly pending contracts data, which is consistent with the year-over-year increase in new listings data. Here’s a look at last week’s pending home sales over the past few years:
- 2024: 393,636
- 2023: 380,231
- 2022: 455,678
The week ahead: Inflation and Fed week!
We had a crazy jobs week last week, and now we’re going to be in dire straits with CPI inflation and Wednesday’s Fed meeting. We will also have some bond auctions this week based on the PPI inflation report. So there’s no break for anyone, as mortgage rates are likely to be even more volatile in the week ahead.
