I will watch for rising mortgage rates to see if they change the weekly data. So far, higher mortgage rates haven’t changed the data yet.

Weekly housing inventory data

Here is a look at the first week of the year:

• Weekly inventory change (Jan. 12-19): Inventory rose from 505,223 to 506,414
• Same week last year (Jan. 13-20): Inventory fell from 473,406 to 472,852
• The inventory bottom for 2022 was 240,194
• The inventory peak for 2023 is 569,898
• For context, active listings for this week in 2015 were 933,746

Yes, the inventory growth rate slowed weekly, but I will take it! I have been waiting for years for a standard inventory data line to start the year, and so far that’s what I’m seeing. Traditionally, the weekly inventory bottoms out in January or February and rises into the spring. The bottom has been in March and April in the past few years. So far, so good in 2024.

New listings data

While new listings data isn’t growing in significant terms year over year — sorry, silver tsunami crowd — it is showing growth year over year. Most sellers are buyers, and new listing data decreased after rates increased in 2022. So, we are working our way back to normal, and lthough we still have a way to go, but I am happy with this. I talked about this very topic on CNBC a few days ago. 

New listings data last week over the past several years:

• 2024: 44,244
• 2023: 42,765
• 2022: 42,620

Price cut percentage

Every year, one-third of all homes take a price cut before selling — nothing abnormal about that. However, this data line accelerates when mortgage rates rise and demand gets hit harder. A perfect example was in 2022: when housing inventory rose faster, the percentage of price cuts rose faster, as home sales crashed. That increase matched the slope of the inventory increase, and people needed to cut prices to sell their homes.

This is not what we’re seeing now, as home sales aren’t crashing like they did in 2022. Sales aren’t growing much, but they’re not crashing as they did in 2022, so we track this data line religiously weekly to get clues, especially with the movement of mortgage rates 

This is the price-cut percentage for the same week over the last few years:

• 2024 31.4%
• 2023 34.7%
• 2022 20.6%

Purchase application data

So, the 2024 spring season officially started last week and purchase apps were positive 9% week to week. I believe tracking this data line when mortgage rates are rising is always vital. Of course, we aren’t talking about 8% mortgage rates anymore, but mortgage rates have risen from the recent lows.  So far no damage to the data line yet. We have had a positive trend streak since rates have fallen. I exclude all the holiday weeks and the first week of the year, so we have had seven weeks of positive trend and year-to-data we’ve had one positive print.

We just had the existing home sales report that showed a month-to-month decline. One thing to always remember about purchase application data: it looks out 30-90 days before it hits the sales data, so the December report was too soon to account for the full effect of lower mortgage rates and rising application data.

Also, remember we are working from deficient demand levels, so take the bounce in that context. This isn’t like the COVID-19 recovery, which was fast and had a big volume. 

Mortgage rates and the 10-year yield

The 10-year yield is the key for housing in 2024. In my 2024 forecast, I have the 10-year yield range between 3.21%-4.25%, with a critical line in the sand at 3.37%. If the economic data stays firm, we shouldn’t break below 3.21%, but if the labor data gets weaker, that line in the sand — which I call the Gandalf line, as in “you shall not pass” — will be tested. This 10-year yield range means mortgage rates between 5.75%-7.25%. This assumes spreads are still bad.

Mortgage rates and the 10-year yield both rose last week. Mortgage rates started the week at 6.77% and finished the week at 6.92%. The 10-year yield started the week around 4%, and intraday almost reached 4.20% before heading lower and ending at 4.13%. One positive story in 2024 is that the spreads are getting better this year, and if we get 4.25% on the 10-year yield, we won’t hit 7.25% in mortgage rates.

Last week, we had some excellent labor data from jobless claims. We also had some Fed presidents push back on rate cuts, regarding how many we will have this year. So, always remember that inflation data has fallen noticeably year over year. However, you want to go with labor data over inflation if you’re looking for lower mortgage rates, especially under 6%.

The growth rate on a three- to six-month Core PCE inflation report could be under 2% in the following report. Even with that reality, which the market knows, the 10-year yield today is still above 4%. This looks right to me with a Hawkish Fed and the jobless claims data being low. The closer we get to my critical level of 323,000 on the four-week moving average, the more the bond market will act differently; the headline data just broke under 200,000 again.

Remember, the Fed hasn’t pivoted: they’re less hawkish with their policy because they over-hiked last year and want to take back some of their rate hikes.

The week ahead: Inflation and housing

We have the all-important PCE inflation report coming out Friday, which can show sub 2% PCE inflation data on the three- and six-month averages. We also have new home sales and pending home sales. Pending home sales should show a bounce from the recent report as we will start to filter the positive purchase apps report. If it doesn’t show growth, it should be the last one before it picks up a bit. 

“Slow home sales in 2023 were accompanied by higher mortgage rates, with the average rate on a 30-year fixed rate mortgage hitting a 23-year high in early November. But we can’t blame high mortgage rates for the deficit in transactions last year. In reality, the demand for housing—and homeownership, in particular—has remained high, despite higher rates,” Lisa Sturtevant, the chief economist at Bright MLS, said in a statement. “Prospective homebuyers have been shut out of the market by a lack of inventory. If there had been more listings on the market in 2023, we would have had more home sales.”

A consequence of the tight inventory situation, the median sales price for an existing home rose to a record high of $389,800 in 2023. In December, the median sales price was $382,600, up 4.4% compared to a year ago.

“Despite sluggish home sales, 85 million homeowning households enjoyed further gains in housing wealth,” Lawrence Yun, NAR’s chief economist said in a statement. “Obviously, the recent, rapid three-year rise in home prices is unsustainable. If price increases continue at the current pace, the country could accelerate into haves and have-nots. Creating a path towards homeownership for today’s renters is essential. It requires economic and income growth and, most importantly, a steady buildup of home construction.”

Befitting a challenging year for the housing market, existing home sales closed out 2023 at a seasonally adjusted annual pace of 3.78 million units in December, down 1.0% drop from a month prior.

The monthly drop came after existing home sales rose 0.8% in November, breaking a five-month streak of declines.

On a yearly basis, existing home sales were down 6.2% in December.

Despite the grim numbers, Yun is optimistic.

“The latest month’s sales look to be the bottom before inevitably turning higher in the new year,” Yun said in a statement. “Mortgage rates are meaningfully lower compared to just two months ago, and more inventory is expected to appear on the market in upcoming months.”

Heading into 2024, there were 1 million existing home units on the market, representing a 3.2 month-supply at the current sales pace. Compared to a month ago, housing inventory was down 11.5% at the end of December, but it was up 4.2% from a year prior.

“Continued strength in the homebuilding sector will be important to adding to supply in 2024,” Sturtevant said in a statement. “But listings of existing homes will continue to remain low as current homeowners, many holding sub-three percent mortgage rates, will be reluctant to move.”

Regionally, existing home sales fell in two of the four regions month over month, with the Midwest (900,000 units), and the South (1.72 million units), falling 4.3% and 2.8%, respectively. The sales pace in the Northeast held steady at 470,000 units, while the sales pace rose 7.8% on a monthly basis in the West to 690,000 units.

On a yearly basis, all four regions also recorded decreases in the existing home sales pace, with the Midwest falling 10.9%, the South dropping 4.4%, the Northeast falling 9.6% and the West dropping 1.4%.

The Northeast also recorded the largest year over year price change, rising 9.4% from a year prior to a median sale price of $428,100.

The U.S. real estate housing market signals have been gradually building for a couple of months. Home sellers are starting to ease back into the market, new listings are finally exceeding the levels of a year ago. As a result, we’re starting to see slightly more available supply of homes on the market. This is an expansion of the market from incredibly restricted levels last year. It’s a positive development. 

The longer we stay with mortgage rates higher, the more inventory will build closer to where it used to be. Each year we’ll have 5 million more people who don’t have crazy low rates that they want to hold onto forever. Mortgage rates are higher than they were a year ago. Higher than they were a month ago. Higher mortgage rates means more inventory. 

If mortgage rates fall into the 5s this spring, you should expect the available inventory to decline as demand picks up rapidly. But as of now, rates are holding in the upper 6s and inventory is building slowly. 

It is important to keep in mind that home sales are climbing with inventory. As supply comes to the market, that’s lifting one of the restrictions that kept the home sales so low last year. The number of homes for sale and the number that are being sold are both climbing into 2024 over last year.

Inventory ticked up

There are just over 505,000 single family homes on the market across the U.S. That’s a 1.2% increase over last week and nearly 7% more than last year at this time. Inventory ticked up this week. This week the supply of active inventory gained over 6000 homes. That would have been a big week any time last year.

These are the signals that point to growing inventory of homes on the market all spring. Even if inventory ticks down next week, it looks like that will be a smaller move down than last year, so the year-over-year percentage gain will continue to widen. 

Slightly more sellers

Inventory is building now because we have slightly more sellers each week. The market had about 49,000 new listings this week. 9,000 of those are already in contract. Leaving 40,000 New listings to add to the market which is about a 5% increase versus last year. 

It sure looks now like we’ll have more sellers each week all year long than we did in 2023.

The other side of the equation to keep watch is the purchase side. I’ve called this a supply constrained market. So as the inventory shortage eases just a bit, we should also see more transactions happening. And sure enough, that’s what we’re seeing. There continues to be more new contracts each week than last year at this same time. The pace of home sales is growing. It’s not a boom. but the market is growing.

Price cuts stable

Let’s move on to the price signals. Remember that in 2023, even though we had very few home sales, home prices inched up a bit nationwide. We’re looking at similar dynamics for 2024.

Price reductions continue to decline with the new inventory after the first of the year. Some 32.2% of the homes on the market have had a price reduction. That’s right in the middle of the normal range. This implies slight home price strength in general for the next few months. If rates fall from here into the 5s, watch demand pick up and we’ll immediately see fewer sellers need to cut their prices. 

Median price just under $420,000

The median price of single-family homes is just a hair under $420,000. Home prices ticked up almost half a percent this week. And the median price of single-family homes right now is 3% higher than last year at this time. In this market where supply and demand is pretty balanced, home prices are not going to skyrocket of course and there is no sign of prices dropping either. As inventory grows, and sales rates grow, home prices are reliably ticking up each week as well. That trend hasn’t changed. 

The median price of the newly listed homes is $389,900. That corrected back down from last week’s big jump.

We should be grateful that the market is expanding with more supply and more sales for more people than in 2023. 

Mike Simonsen is the president and founder of Altos Research.

Download the free Altos eBook: “How to Use Market Data to Build Your Real Estate Business”

Weekly housing inventory data

Here is a look at the first week of the year:

• Weekly inventory change (Jan. 5-12): Inventory rose from 499,143 to 505,223
• Same week last year (Jan. 6-13): Inventory rose from 471,349 to 473,406
• The inventory bottom for 2022 was 240,194
• The inventory peak for 2023 is 569,898
• For context, active listings for this week in 2015 were 931,002 

I don’t want to jinx this because active inventory rose last year at this time. In any case, we will keep an eye on housing inventory going out in the future. As you can see, we are still a bit away from my ultimate goal of having total active listings back to 2019 levels.

Price cut percentage

Every year, one third of all homes take a price cut before they sell — there is nothing abnormal about that. However, this data line accelerates when mortgage rates rise and demand gets hit harder. A perfect example was 2022: when housing inventory rose, the percentage of price cuts rose and home sales crashed. This is not what we’re seeing now. Sales aren’t growing much, but they’re not crashing as they did in 2022 so we track this data line religiously every week to get clues.

This is the price-cut percentage for the same week over the last few years:

• 2024 32.2%
• 2023 35.8%
• 2022 21.7%

New listing data

New listings data can grow in 2024, something I talked about on CNBC last year as this data line didn’t trend much lower when mortgage rates were heading toward 8%. We took an affordability hit after July of 2022 and since most sellers are also buyers, it was too expensive to move, or you couldn’t qualify to sell to buy another house, directly impacting housing inventory.

Every year, wages grow and home-price growth has significantly slowed since the madness after COVID-19. We can grow new listings from these depressed levels and get more demand. While this isn’t the Silver Tsunami some have promised, any growth back to 2021-2022 levels is a plus.

• 2024 39,640
• 2023 36,804
• 2022 37,091

Mortgage rates and the 10-year yield

The 10-year yield is the key for housing in 2024. In my 2024 forecast, I have the 10-year yield range between 3.21%-4.25%, with a critical line in the sand at 3.37%. If the economic data stays firm, we shouldn’t break below 3.21%, but if the labor data gets weaker, that line in the sand — which I call the Gandalf line, as in “you shall not pass” — will be tested. This 10-year yield range means mortgage rates between 5.75%-7.25%. This assumes spreads are still bad.

Last week, even with the CPI and PPI inflation data, the 10-year yield stayed in a small range between 3.92%-4.07%. We have already moved lower in a big fashion from 5.04% to 3.80%; that 3.80% level is critical for now. Mortgage ranges have been calm as the spreads have been getting better. Mortgage rates started the week at 6.74%, reached as high as 6.80% and ended the week at 6.69%. We want to watch labor data and track if the spreads improve this year because mortgage rates should be 0.75% to 1.125% lower today but aren’t due to the spreads.

Next week, retail sales could be a driver of the 10-year yield, and therefore mortgage rates.  Also, any Federal Reserve presidents talking about slowing down the quantitative tightening process would be a plus. This is something that they have been talking about recently.  

Purchase application data

One of the things I have stressed over the years is that nobody should put any weight on the purchase application data during the last few weeks of the year because hardly anyone fills out a mortgage application during Christmas and New Years. And since the data takes a seasonal low dive, it tends to then bounce during the first week of the year, so we should ignore the first week of the year as well.

This is why I stress tracking purchase applications the second week of January to the first week of May. Volumes always tend to fall after May. With that said, purchase applications did have 6% week-to-week growth last week, but what was more encouraging to see is that when mortgage rates fell recently from 8% to almost 6.50%, we had six weeks of positive growth.

We can now officially start the seasonal housing period and the year-to-date counts on how many positive weeks we have versus negative weeks and where rates move. Remember that last year, even with mortgage rates ranging between 6%-8%, we had 23 positive and 24 negative prints and two flat prints for the year. Imagine a year with lower rates, and one where we don’t have a 2% increase in the calendar year. As you can see in the chart below, the bar is low for growth.

The week ahead: Housing week and CNBC 

We have a ton of housing data coming up this week, including builders’ confidence, housing starts and the existing home sales report. Retail sales also come out this week, and that report might move the bond market early in the morning. And unless the schedule changes, I will be on CNBC on Thursday on the Exchange segment, talking about the housing starts data.

The key for 2024: track all economic data religiously to see its impact on the 10-year yield!

Nationwide, the share of homeowners with relatively low rates has fallen modestly from a record high of 92.8% in mid-2022. In the third quarter of 2023, 88.5% of U.S. homeowners with mortgages had an interest rate below 6%.

To conduct this study, Redfin analyzed data from the Federal Housing Finance Agency’s National Mortgage Database as of the third quarter of 2023. 

Many homeowners choose to sell because of major life events, such as a marriage, a new child, a new job, or a divorce. Others simply want to move to a different house or city. Another reason explaining why the share of homeowners with relatively low rates has dipped is that some homeowners have a rate above 6%. For repeat buyers and first-time buyers who entered the market in 2022, the average mortgage rate was above 6%. As rates are currently declining, it makes sense for them to get a new mortgage.

The lock-in effect is still real but listings are starting to tick up

Declining mortgage rates appear to have helped the inventory situation somewhat. The 30-year fixed-rate mortgage averaged 6.66% as of Jan. 11, down from a peak of roughly 8% in October. 

“Sellers have started coming out of the woodwork because that’s typical for January and because mortgage rates have dropped,” David Palmer, a Redfin Premier real estate agent in Seattle, said in a statement. “They’re also coming to terms with the fact that rates aren’t going back down to 3% any time soon, which makes it easier to pull the trigger on selling. But a lot of sellers are worried about finding their next house because even though listings are rising, there’s still a housing shortage. That’s part of the reason so many sellers remain on the sidelines.”

Of course, there’s a group of homeowners who are sitting on enough equity to justify selling their home and taking a higher mortgage. As prices soared during the pandemic, many homeowners made a big profit on their purchase. Taking a new mortgage now can make even more sense if the homeowners wish to downsize or move to a more affordable area. As of the third quarter of 2023, 88.5% of mortgaged U.S. homeowners have a rate below 6%, 78.7% below 5%, 59.4% below 4%, and 22.6% below 3%.

Affordability remains an issue even if mortgage rates started to trend down

For the four weeks ending January 7, 2023, the monthly payment on a median-priced U.S. home with an average mortgage rate of 6.62% cost $2,399. While that figure is down $325 from the all-time high in 2022, it’s still up 7.4% from a year ago. Overall, both mortgage rates and home prices are higher than they were last year.

Downes, who currently serves as Enterprise Housing Credit Investments EVP, will succeed current president Scott Hoekman who has spent the past 30 years at Enterprise.

In addition to serving as president, Downes “will also serve as a member of the leadership team of Enterprise’s Capital division, which collectively oversees a $16.6 billion affordable housing and community development investment platform,” according to an announcement from the company.

“It has been a great privilege to be a part of Enterprise over for the past 30 years, and I am making the decision to step down with the utmost confidence in our extraordinary team, all of whom are committed to creating and preserving affordable homes by providing best-in-class service to our investor and developer partners,” Hoekman said in a statement. “With Kari as Enterprise Housing Credit Investments’ next leader, I know that the organization is in the best possible hands.”

Downes will assume the leadership position at the organization as it marks a milestone of $20 billion in cumulative investments. These “have financed 2,800 developments, creating or preserving 200,000 affordable homes nationwide,” The company said. $7.1 billion of that total investment figure occurred during Hoekman’s tenure as president, which began in 2018.

Last year marked “a fifth consecutive year of record investment,” as Enterprise Housing Credit Investments deployed $1.729 billion, the company added.

Downes is looking forward to serving in the new position.

“The Low-Income Housing Tax Credit is the most powerful and impactful way to increase the supply of affordable homes. With the help of our incredible team here, we will continue to grow our impact so that everyone can have a safe and affordable place to call home,” she said.

Based on the trends we can see after the start of the year, I’ll project 2024 will see about 15% home sales growth over 2023. Home prices will be up this year by a few percentage points, also. 

These are very clear trends as we start the new year. 2022 started insanely strong and weakened rapidly in the second quarter. 2023 started with recovery, but slowed down in Q3 as mortgage rates hit 8%. But, 2024 is starting stronger than last year. And demand is increasing each week. 

Could the housing market change and slow again in 2024? That’s certainly possible. But as of right now each week is showing increasing activity. The data does not show any slowing on any of the active market metrics.

• Home sales are increasing every week.
• Inventory is inching up.
• Home price signals are increasing too.

Sellers are coming back

There are 499,000 single-family homes unsold on the market now. That’s 2.75% fewer than last week, but 6% more than last year. Each week, inventory is increasing just a bit relative to last year. There are slightly more sellers each week. 

Last year, was marked by how few sellers there were. It sure feels to me like that crazy restriction is easing a bit. We can expect to have more sellers all year. Unless rates dip into the 5s, then I expect demand will pick up so quickly that inventory will drop again. I’ve pointed out that consumers are more sensitive to changes in mortgage rates than to the absolute levels. Over the last 24 months we’ve had incredible volatility in mortgage rates. And if rates stabilize in the 6s and 7s this year, that will allow these trends we see now to continue. 

Inventory growth is not spread across the country

Inventory is climbing in the south and central US. Texas, Florida, Arkansas, Louisiana up through Nebraska and Wisconsin have more homes available to buy than last year at this time. Unfortunately the Western and Northeast states have less available inventory than last year. Nevada, California, Arizona, New York & New Jersey. It’s going to be fascinating to see how this regional disparity plays out for the rest of the year. 

I think it’s important to keep in mind that as inventory of homes to buy grows, so does the pace of sales. This really illustrates how we had a supply constrained year last year. Sales were held back for lack of sellers. There are now 247,000 single family homes in contract. That is 4.25% more homes in contract now than last year at this time. These are sales that are going to close in the next month or so. So the sales rate is already growing for 2024.

New contracts up

New contracts were 13% more than last year during the first week of January. This sales rate has been trending up very obviously. I am confident that we’ll see 15% more home sales in 2024 than we had last year. That’s a pretty healthy growth, but it’s easy from such low levels. Total sales pending is 4% more than last year the new pendings this week is 13% more. Home sales are growing.

Price reductions dropping

Meanwhile price reductions are dropping rapidly. Each week fewer home sellers need to drop their prices. Currently 32.8% of the homes on the market have taken a price cut. That’s 200 basis points fewer than last week. There are fewer price reductions because there is more fresh inventory and more of them are getting offers. 

Small spike in new listings

After the first of the year we always see early price signals with the price of the cohort of new listings each week. Sellers have waited over the holidays and they start hitting the market right after new years. If they have buyers, the price of the new listings spikes up quickly. You can see it most dramatically two years ago, at the peak of the pandemic buying frenzy. The bright red line price of the new listings spiked up quickly after January 1.

This year we can see a little spike in the new listings price already to $409,000. Though I expect it to dip again next week before resuming a climb through May. What we’re looking for here is how quickly the price of the new listings rises in the next few weeks. It should tell us if we’re looking at a 0-3% home price increase for 2024 or maybe 3-5% increase.

Median price is strong

The median price of all the single-family homes in the U.S. is now $418,000. There is enough strength in the pricing signals that it looks like this spring we’ll pass the all time high from June two years ago. Like inventory the home price appreciation is 3-5% average across the country but it is not the same everywhere. Some markets are still down from the pandemic peaks and haven’t found the bottom yet.

Mike Simonsen is the president and founder of Altos Research.

Download the free Altos eBook: “How to Use Market Data to Build Your Real Estate Business”

Traditionally, one third of all homes get a price cut before they sell and when demand gets weaker, this percentage increases, which we saw in 2022 when prices were falling in the second half of the year. However, as home sales stabilized in 2023, so did this data line. While the percentage of price cuts is still much higher than 2021 levels, this explains why prices were stable in the second half of 2023 versus the second half of 2022.

Now that mortgage rates have fallen and as we start the brand new year, we need to focus on this data line more. I believe we should get more sellers in 2024 than in 2023, but that doesn’t necessarily mean home prices will fall. 

Price cut percentages

As you can see in the chart below, if we continue the current seasonal trend, we are going to surpass the price-cut percentage lows of 2023 by this spring. This is why following the housing market tracker tied to the 10-year yield, mortgage rates, and purchase application data will be as critical as last year to tell you what’s going on in the housing market. That way you don’t need to wait for stale sales data. If mortgage rates increase or supply grows faster than expected, this data line is critical to telling the truth.

Here are the year-over-year price-cut percentages from the first week of the year:

• 2024 32.8%
• 2023 36.5%
• 2022 22.6%

It’s 2024! Time to get this party started!

Of course, my main wish during the crazy COVID-19 period was to try to get total active listings back to pre-COVID-19 levels, which was a functioning marketplace with more choices. It’s been challenging as only a few parts of the U.S. have returned to pre-COVID-19 levels. However, one key for 2024 is finding the seasonal bottom in housing inventory sooner rather than later. We want to see active inventory bottom out in January and February — not March and April. 

Weekly housing inventory data

Here is a look at the first week of the year:

• Weekly inventory change (Dec. 29-Jan. 5): Inventory fell from 513,240 to 499,143
• Same week last year (Dec. 30-Jan. 6): Inventory fell from 490,809 to 471,349
• The inventory bottom for 2022 was 240,194
• The inventory peak for 2023 is 569,898
• For context, active listings for this week in 2015 were 959,028

New listings data

This is the year we should all be rooting for new listings data to grow. Last year, It was great to see that new listing data didn’t take a new dive lower no matter how high mortgage rates got. While working from the lowest levels, 2024 should show year-over-year growth: I’d like to see new listings data get back to 2021 and 2022 levels. Both these years were the lowest new listing levels before rates rose, so it’s not asking for much. I talked about this on CNBC a few months ago.

The year-over-year data is meaningless late in the year or very early: we need to get back to 2021 and 2022 levels during the spring period entering the summer. Hopefully, this will occur in 2024.

Mortgage rates and the 10-year yield

In my 2024 forecast, the 10-year yield range is between 4.25%-3.21%, with a critical line in the sand at 3.37%. If the economic data stays firm, we shouldn’t break below 3.21%, but if the labor data gets weaker, that line in the sand — which I call the Gandalf line, as in “you shall not pass,” will be tested. This 10-year yield range means mortgage rates between 7.25%-5.75%. If the spreads get better, mortgage rates can be lower than this.

Last week was jobs week, and some of the data was good, while some showed softness. Starting from Tuesday, mortgage rates starting didn’t move too much even though the bond market had some wild swings.

However, from the previous week, we went from mortgage rates of 6.61% to a high of 6.76%. Right now, I am watching for 3.80% on the 10-year yield, and if the economic data gets better and the Federal Reserve makes another mistake by getting too hawkish, 4.40% on the upside. However, one big positive now is that the spreads are improving. We have the CPI inflation report coming up this week, so that should be a market mover. Always remember, the Fed presidents can say something hawkish and mess things up daily.

Purchase application data

I will keep this very short and sweet: we never care about the last two weeks of the year with purchase applications because nothing happens during Christmas and New Year’s Eve. Traditionally don’t track the first week of the year either, but for the tracker purposes, starting next week, I will.

The truth is that mortgage demand has collapsed, and it has a tough time growing with rates above 6%. With that said, last year, we had 23 positive and 24 negative prints, and two flat prints for the year. Before Christmas came, we had an excellent six-week positive growth trend as mortgage rates fell almost 1.5% from 8%.

Purchase apps are seasonal; we focus on the second week of January to the first week of May. Traditionally, volumes always fall after May, so we will get a good idea of how the year will look soon. Remember, context is vital we are working from the lowest levels ever, so it doesn’t take much to move the needle higher, but we want to see real growth, not a low-level bounce. A sub-6% mortgage rate with duration should do the trick, but we aren’t there yet. So, for now, we will be very mindful of the weekly data.

The week ahead

We have two inflation reports coming out this week: The all-important CPI report on Thursday and the PPI report on Friday. The growth rate of inflation has cooled down enough to stop the rate hike cycle and now we want to see rate cuts. The one good thing about the CPI report is that the most significant component of CPI, shelter inflation, hasn’t had its big move lower yet. Also, it’s impossible to have core CPI accelerate higher without shelter inflation taking off again since it’s 44.4% of the index.

The 30-year fixed-rate mortgage averaged 6.62% as of Jan. 4, a slight increase from the 6.61% rate recorded on Dec. 28, according to Freddie Mac‘s Primary Mortgage Market Survey released on Thursday. The 15-year fixed-rate mortgage averaged 5.89% this week, down from 5.93% the prior week. HousingWire’s Mortgage Rates Center showed Optimal Blue’s average 30-year fixed rate on conventional loans at 6.68% on Thursday, up from 6.56% recorded at the same time last week.

“Between late October and mid-December, the 30-year fixed-rate mortgage plummeted more than a percentage point,” Freddie Mac Chief Economist Sam Khater said in a statement. “However, since then rates have moved sideways as the market digests incoming economic data.”

Given the expectation of rate cuts this year from the Federal Reserve, Khater expects mortgage rates to continue drifting downward.

“While lower mortgage rates are welcome news, potential homebuyers are still dealing with the dual challenges of low inventory and high home prices that continue to rise,” he added.

One year ago this week, the 30-year fixed-rate mortgage stood at 6.48%, while the 15-year rate stood at 5.73%.

Lower rates attract homebuyers back to the market but difficulties persist

According to a Realtor.com survey, 11% of surveyed prospective homebuyers said that they would be able to buy a home if rates went below the 7% threshold. Another 12% of surveyed homebuyers said that rates would need to dip below 6% for them to be able to buy a home. Meanwhile, more than a quarter (28%) said rates would need to dip below 4% to bring them into the market. 

Currently, the typical outstanding mortgage rate is still under 4%. This discrepancy is not creating any incentive for sellers to sell their homes in the current rate environment, according to Realtor.com Economic Research Analyst Hannah Jones. 

However, the cost of buying a home did come down in December, sending an encouraging signal to the market. As per a Redfin study, the median U.S. mortgage payment was $2,361 during the four weeks ending December 31, down $372 (-14%) from October.

According to Bright MLS Chief Economist Lisa Sturtevant, the lack of inventory remains the main issue, keeping home prices elevated.

“Young buyers are having to delay buying a home as it takes them longer to save for a down payment and they often have to make offers on multiple homes before they are successful,” Sturtevant said. “Many first-time homebuyers have been priced out of the market altogether.”

Sturtevant expects the lack of inventory to remain a challenge this year even as mortgage rates fall.

About 47% of mortgage pros said they anticipate purchase mortgage origination volume going up in the next three months in their respective markets, according to HousingWire’s Q1 2024 LenderPulse survey.

Some 36% of respondents believe purchase origination will remain flat while 17% expected it to drop in the next three months.

The results reflect mortgage professionals’ confidence for an improved quarter compared to HousingWire’s previous Q4 2023 LenderPulse survey when only about 19% of surveyed respondents projected purchase mortgage units to rise by more than 5% during the period. 

In its latest survey, more than half (55%) of the respondents said interest rates will trend down in the next three months. About 43% of mortgage pros said rates will remain unchanged and 2% anticipated rates to increase.

The improved sentiment follows fresh economic projections from central bank officials in December that showed rates would be slashed to a median 4.6% by the end of 2024, suggesting three 25 basis points (bps) cuts from current level between 5.25%-5.5%

The Federal Open Market Committee members penciled in interest rates falling to a median 3.6% in 2025 and projected rates to fall below 3% by the end of 2026.

Mortgage pros pointed to interest rates as their biggest challenge.

Lack of housing inventory and relationships with real estate agents followed as their main challenges over the next three months.

Roughly 41% of respondents are neutral about the housing market in Q1, while 38% are optimistic and 21% are pessimistic and 14.1% are optimistic.

Of the 157 completed surveys, 30% were from the Southwest; 23% from the Southeast; 20% from the Northeast; 16% from the Midwest; and 11% from the Northwest. The survey was conducted from Nov. 23 to Dec. 22, HousingWire LenderPulse is a forward-looking quarterly survey.

Effects of commission lawsuits not felt yet

While commission lawsuits rattled the real estate industry in 2023, homebuyers haven’t made inquiries about the topic, the majority of the mortgage professionals responded.

One respondent said: “(The topic) Hasn’t been brought up by buyers yet and there’s a lot of uncertainty as to how it will ultimately play out.”

“If an inquiry is received, the response is, this will be years before being finalized and any questions they have should be directed to their realtor and legal counsel,” another mortgage professional said.

Most of the respondents are taking a ‘wait and see’ approach as it could take years to see any impact of commissions on buyers and sellers.

“I continue to advocate for the value of the agent and working with them as a partner. When we see the changes materialize we will counsel buyers around this and inform them of the options,” said a respondent.

About 60% of mortgage pros said they have not made adjustments to their referral partner strategy in response to the real estate commission lawsuits.

“We continue to work with listing agents as referral partner relationships (existing and development). We have developed, maintained and focused on this listing agent referral source for a long time, so this is not an adjustment, just a greater prioritization,” another respondent said.

Other mortgage pros said they are working on more direct lead generation to focus on consumers rather than realtors.

“We are spending less time focusing on agent relationships and spending more time/effort on other partner options like existing members, finance professionals, etc,” a mortgage professional said in HousingWire’s LenderPulse survey.