There is a common misconception circulating on social media that lower mortgage rates have little impact on housing demand. However, recent data suggests otherwise. While opinions may vary, an analysis of key indicators demonstrates that declining mortgage rates have begun to shift housing trends. Here is a closer look at the data.
Purchase Application Data
Purchase applications (apps) provide one of the fastest indicators of housing demand, responding quickly to shifts in mortgage rates. Historically, these apps are highly seasonal, with volumes peaking at the beginning of the year and gradually declining after May. Typically, purchase app trends provide a 30-90 day lead time before impacting sales data.
Earlier this year, as mortgage rates increased, the purchase application data reflected a steep decline:
Before rates began rising, there were eight weeks of positive purchase application trends. Once rates increased, however, the data trended downward significantly.
Since mortgage rates started falling in mid-June, the data shows a more balanced trend:
This shift highlights how reduced mortgage rates have nearly doubled the number of positive weeks compared to earlier in the year, underscoring the relationship between rate fluctuations and demand.
Impact on New and Existing Home Sales
New home sales have benefited more from declining mortgage rates compared to existing home sales. This trend became evident more than two months ago and continues to differentiate itself from existing home market dynamics.
Mortgage Rates and the 10-Year Yield
Forecasts for 2024 predict mortgage rates will fluctuate between 7.25% and 5.75%, while the 10-year yield is expected to range between 4.25% and 3.21%. Mortgage rates are currently near their lowest point for the year, not far from the bottom end of the forecast at 5.75%. For rates to decrease further, weaker economic data or a more dovish stance from the Federal Reserve would be necessary.
Additionally, mortgage spreads — the difference between the rate a borrower pays and the yield on government bonds — could influence future rate reductions.
Mortgage Spreads
One of the factors that could push mortgage rates to the lower end of the forecast is an improvement in mortgage spreads. If spreads were to return to 2023’s worst levels, current mortgage rates would be approximately 0.58% higher. While spreads remain far from average, the observed improvement is a positive development.
Weekly Housing Inventory Data
Higher mortgage rates typically result in increased housing inventory. For the past two years, inventory has grown by 11,000-17,000 units per week as long as rates remained above 7.25%. Although this pattern held for much of 2023, recent declines in mortgage rates have tempered inventory growth. Last week, for instance, inventory increased by 10,014 units.
For comparison, in 2015, active listings during this week reached 1,201,529.
New Listings Data
New listings have also seen a modest increase after hitting record lows in 2023. While most sellers are also buyers, it remains essential for listings to return to normal levels for sustained sales growth. The 2024 forecast anticipated an average of 80,000 new listings per week during peak months, but the actual number fell short by about 5,000.
Price-Cut Percentage
In a typical year, about one-third of homes experience a price reduction. However, rising mortgage rates have led to an increase in price cuts, particularly as inventory grows. Recently, this trend has slowed as mortgage rates have declined.
Weekly Pending Sales
Pending home sales, as tracked by Altos Research, offer a real-time glimpse into demand. While the data shows a typical seasonal decline, there has been year-over-year growth.
While this growth is a positive sign, it should be interpreted cautiously, as rising mortgage rates in 2023 significantly impacted last year’s numbers.
If you are a proptech company and want to promote your products for free, go to proptechbuzz.com and submit your products. For investors or proptech buyers, sign up on our platform to stay informed about exciting updates and trends in the Proptech Ecosystem.
Explore more Proptech news at proptechbuzz.com/news, for news tips and promotions, reach out to marketing@proptechbuzz.com.
By Proptechbuzz
By Ravi Kumar
