Housing demand still showing double-digit growth

Last week, we witnessed a Santa Claus rally in mortgage rates alongside improved housing demand. The economy continues to create jobs, with wages growing at an annual rate of 4%. We also see growth in our pending contract data compared to 2022 and 2023. Additionally, the purchase application data delivered another pleasant surprise with positive results.

As I have mentioned for years, coming off the lowest home sales figures ever makes it easier to see positive changes. Let’s get into the holiday spirit with this week’s Housing Market Tracker data!

Weekly pending sales

The weekly pending contract data from Altos Research offers an insightful look into real-time housing demand. However, like most housing data, this information is quite seasonal. When mortgage rates began to decline in June, there was a traditional lag between purchase applications and sales. But, we observed an improvement in our weekly pending contract data and even today, despite elevated rates, the trend remains better than what we experienced in 2023 and most of 2024.

If mortgage rates could stay between 5.75%-6.25% for a year, housing demand and sales would grow and surprise most people since the bar is so low we all would trip over it. 

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

• 2024: 315,566
• 2023: 278,735
• 2022: 282,313

Purchase application data

The recent purchase application data has surprised a lot of people.  For the first time all year, I saw authentic shock on social media when purchase application data had another positive print even with elevated mortgage rates.

Is this the early seasonal demand push we see now? We have over 162 million people working, so the sheer size of our workforce can add just a tad more demand in the seasonal push. Let’s see how the year ends, but since mortgage rates rose, the data has been positive for the last eight weeks.

• 5 positive prints
• 3 negative prints

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

When mortgage rates started falling in mid-June, here’s what purchase applications looked like:

• 12 positive prints 
• 5 negative prints
• 1 flat print

With two years of data, we observe a positive growth trend in purchase applications when mortgage rates approach 6%. This is why I am a bit more suspicious of the seasonal increase in purchase apps now, as mortgage rates rose from 6% to 7% during the last two months. 

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%

The 10-year yield ended the week toward the lows. Oddly enough, it wasn’t jobs week data that moved the bond market this week, but the ISM service index, which came in soft and sent bond yields lower more aggressively.

We had a good week in mortgage rates because Friday’s pricing was very good for a day that didn’t have too much movement lower in yields. As we have often discussed, it was positive for rates that the key technical level around 4.40%-4.50% held and reversed.

Mortgage spreads

The mortgage spread situation has improved a lot this year, especially compared to the tough times in 2023. If we had the worst levels of the spreads in 2023, the housing discussion would be much different today, as mortgage rates would have been higher all year long by roughly 0.60%. Last week, the 10-year yield was significantly influenced by the ISM services report rather than by any labor report.

Throughout the week, the spreads were not favorable. However, on Friday, we saw the 10-year yield decline alongside much-improved spreads, which led to better pricing.

Weekly housing inventory data

Housing inventory fell last week, which is typical at this time of year. The peak in 2024 inventory will be 739,434, which isn’t a normal level for inventory, but it’s good enough for me to feel much better about the housing market. The year-over-year inventory growth is the best housing story for 2024. 

• Weekly inventory change (Nov. 29-Dec. 6): Inventory fell from 706,554 to 690,015
• The same week last year (Nov. 30 Dec. 7): Inventory fell from 555,717 to 546,424
• The all-time inventory bottom was in 2022 at 240,497
• The inventory peak for 2024 so far is 739,434
• For some context, active listings for this week in 2015 were 1,050780

New Listings

New listings data is experiencing its traditional seasonal decline, and the epic fall we saw last week was standard, considering it was Thanksgiving. We should expect a bounce in the data this week. New listings haven’t hit the numbers I hoped for this year; I got close, but it’s off by 5,000. Still, one of the best stories in 2024 was the growth we saw in new listings data. 

New listings data for last week:

• 2024: 30,754
• 2023: 43,188
• 2022: 39,49

Price-cut percentage

In an average year, about one-third of all homes experience price cuts, a standard occurrence in the housing market. When mortgage rates rise, the percentage of homes that reduce their prices significantly increases. Conversely, this trend decreases when rates drop and demand rises, as we recently observed with falling rates.

However, even with a high percentage of price cuts recorded in 2024, national home prices did not decline, let alone crash. So, for those novice housing analysts trying to use our data to suggest that home prices were dropping, we encourage you to do better in 2025.

Here are the price-cut percentages for last week compared to previous years:

• 2024: 38.4%
• 2023: 38.7%
• 2022: 42%

The week ahead: Inflation week!

Next week is inflation week, featuring both the Consumer Price Index (CPI) and the Producer Price Index (PPI) reports. The Federal Reserve will review these reports before their next meeting, which increasingly suggests a 0.25% rate cut, with a pause to wait for further data.

Additionally, we will see the final print of the Unit Labor Cost Wage Index for the year, which the Fed monitors closely, as well as bond auctions. It will also be interesting to observe whether mortgage purchase applications continue their positive trend, as mortgage rates have fallen slightly over the past week, and what happens with housing demand.