Have lower mortgage rates positively impacted the housing demand data yet? Some people have been very disappointed with the data so far, so I wanted to take an in-depth look with this week’s tracker to see what lower rates have done to these key data lines. Let’s look at two of those data lines today to see if we can spot a positive trend.
Purchase application data
My belief has always been that for the existing home sales market to have real growth and make it stick, we need sub-6 % mortgage rates with some duration. I focused on this with CNBC early in the year when asked this question.
Toward the end of 2022, mortgage rates fell toward 6%, which gave us 12 weeks of positive data and one massive existing home sales report. But then rates went up and sales headed lower. Toward the end of 2023, mortgage rates went lower but got nowhere close to 6%, and we only had eight weeks of positive growth. Then, once again, mortgage rates headed higher and sales went lower. My firm belief in the rate model forced my hand earlier this year to say that monthly home sales data peaked unless rates fell.
What about now with purchase apps?
Purchase apps are very seasonal; I weigh these typically after the second week of January until the first week of May. Usually, volumes always fall after May. However, the past two times, that rates fell, we got more activity in purchase apps in November, closer to what we would see in the seasonal spring months. What about now?
With mortgage rates dipping again, some people anticipated something similar to what we saw toward the end of 2022 and 2023. However, as of today, we only have slightly positive data. In the last nine weeks, we only have five positive purchase application weeks versus four negatives. Percentage-wise it’s a cumulative 14% versus 12% on the four negative weeks. For now, lower rates have only marginally impacted the demand.
The recent pending home sales data came in as beat because the first few weeks in June were positive. So, in reality, nothing significant is happening, but it’s still a positive trend from earlier in the year when mortgage rates headed toward 7.5%.
Weekly housing inventory data
The best story for housing in 2024 has been the growth in housing inventory. We are well away from the savagely unhealthy levels of 2022 when we had only 240,000 homes available for sale in March of that year. Now, my model for weekly inventory growth is simple: Higher rates, when they don’t create mortgage demand, can push inventory higher.
As long as rates stay high, especially 7.25% and higher, inventory should grow between 11,000 and 17,000 per week. This would be an average level for me, which has happened six times so far this year — perfectly in line with that model. We haven’t broken above 17,000 in the weekly data yet this year. But what about the last three weeks when we’ve seen lower rates?
For the last three weeks, inventory growth has been healthy in my mind, but I haven’t been able to hit my weekly growth target even with lower rates. It’s not a big deal; it’s still a positive year for inventory growth.
Last three weeks, inventory growth has been:
- Last week: 9,024
- Week before: 6,482
- 2 weeks ago: 8,883
We are getting closer and closer to inventory seasonality, and regardless of what happens in the last few months of 2024, inventory growth is a plus.
Conclusion?
While we haven’t seen a super positive run in housing demand with lower rates, we have seen growth in refinancing. This is something I discussed recently in this podcast: It’s a shallow bar to show growth in the data, but we did get some with lower rates.
For the purchase application data, it will be critical to watch for the rest of the year if mortgage rates stay below 7% and head lower. The closer we get to the end. of the seasonal housing period, and if rates stay lower, we should see some year-over-year growth in purchase apps, but that’s only because of the lowest bar ever when rates reached 8% last year. We will keep an eye out on this, and on the other variable that will be so key: mortgage spreads.
If we had average spreads, mortgage rates would be 5.5% today, and if the 10-year yield falls, we could get low 5% mortgage rates and then below 5% with average spreads. For now, we’re taking it one week at a time as we get closer and closer to the Fed starting its process to cut rates and keep a sharper eye on the state of the U.S. economy.
