Could a Santa Claus Rally Boost Mortgage Rates This Holiday Season?
Get ready for some uplifting news in the housing market! Many were bracing for doom as tariffs threatened to push mortgage rates to a staggering 8%, potentially chilling housing demand. But guess what? This week brought a breath of fresh air. The 10-year yield has hit a pivotal point and even started to trend downward, leading to a welcome dip in mortgage rates. Surprisingly, housing demand is holding strong despite those elevated rates, proving that the market is more resilient than we thought!
While the uptick in demand may not be monumental, it’s certainly a step in the right direction, and that deserves a round of applause! Let’s dive into the latest housing data as we gear up for the end of the year.
10-Year Yield and Mortgage Rates
My 2024 forecast laid out some intriguing projections:
- Mortgage rates between 7.25% and 5.75%
- 10-year yield ranging from 4.25% to 3.21%
The recent drop in mortgage rates can be traced back to shifts in the bond market, where traders are optimistic about buying 10-year bonds at this favorable price point. With the Citigroup Economic Surprise Index showing signs of stabilization, things are looking up!
Concerns about a surge in inflation that would necessitate interest rate hikes have largely been put to rest. The peak for the 10-year yield hovered around 5% in 2023, and thankfully, that downward trend appears secure—for now. As long as the economic data doesn’t surprise us on the upside, we’re likely to avoid those dreaded 8% mortgage rates.
Speaking of hopeful signs, I like to think of a “Santa Claus rally” as investors buy into the 10-year yield, nudging mortgage rates lower. That’s precisely what happened over the past two years, and we’re all hoping for a repeat this season!
Mortgage Spreads
Great news on the mortgage spread front! The landscape has vastly improved in 2024, especially compared to the struggles of 2023. Thanks to this positive change, we’re seeing mortgage rates at around 6% with the 10-year yield not even breaching 3.37%. Just think—if spreads hadn’t improved, we could be staring down mortgage rates above 7.50% right now!
Even though we’ve seen a slight uptick in spreads since rates began to climb in September, the situation is far more favorable compared to last year’s peak levels. Had spreads remained as high as they were in 2023, we would be looking at rates nearly 0.60% higher. Conversely, if average spreads had taken the stage, we’d be experiencing rates falling by approximately 0.93% to 1.03%. It’s truly a breath of fresh air in the mortgage market!
Weekly Pending Sales
The weekly pending contract data from Altos Research offers us an incredible view into real-time housing demand. This data follows seasonal trends beautifully, as illustrated in the chart below. Initially, we saw robust performance with mortgage rates hovering around 6%. It’s heartening to see pending contracts remaining steady year-over-year, even with rising home prices and mortgage rates. Just imagine if rates were to stabilize between 5.75% and 6.25% for a whole year!
Here’s the rundown of last week’s pending sales compared to previous years:
- 2024: 317,080
- 2023: 296,615
- 2022: 299,312
While our pending contract data showed year-over-year growth a while back, the NAR’s pending home sales have only just caught up!
Purchase Application Data
The latest purchase application data was nothing short of astonishing. Typically, when mortgage rates rise from a lower trend, the effects can be pretty grim for a while. However, last week’s data showed an impressive 12% week-to-week growth, marking a positive trend over the last seven weeks—a delightful surprise as we head into the holiday season. Here’s the breakdown of the past seven weeks:
Earlier in the year, when mortgage rates were on the higher side (between 6.75% and 7.50%), here’s how the purchase application data fared:
- 14 negative prints
- 2 flat prints
- 2 positive prints
But as mortgage rates dropped around mid-June, here’s what we saw:
- 12 positive prints
- 5 negative prints
- 1 flat print
The data tells a clear story: when mortgage rates approach that sweet 6% spot, we observe a positive growth trend in purchase applications.
Weekly Housing Inventory Data
Housing inventory took a dip last week, a seasonal norm. We can expect this trend to continue until spring brings renewed activity. The peak inventory for 2024 is projected at 739,434, which, while not typical, signifies healthy growth compared to previous years. The year-over-year inventory increase is one of the brightest stories for 2024!
- Weekly inventory change (Nov. 22-Nov. 29): Inventory fell from 719,055 to 706,554
- Same week last year (Nov. 24-Nov. 30): Inventory fell from 565,875 to 555,717
- All-time inventory low was in 2022 at 240,497
- Peak inventory for 2024 so far is 739,434
- For context, active listings for this week in 2015 were 1,082,020
New Listings Data
We’re currently witnessing a seasonal dip in new listings data, with a small decline noted last week and an even larger decline expected this week.
Despite my underestimation of new listings growth during the peak seasonal weeks by about 5,000, it’s uplifting to see growth in 2024. However, both 2023 and 2024 will likely be recorded as the two lowest years for new listings in history. The assumption that homeowners would flood the market with properties is a misconception; American homeowners approach selling as a careful, considered decision—not a hasty stock trade swayed by online sensationalism.
New listings data for last week:
- 2024: 51,800
- 2023: 28,297
- 2022: 28,471
Price-Cut Percentage
In a typical year, about one-third of homes undergo a price cut, a common occurrence in the housing market. When mortgage rates rise, the percentage of homes seeing price reductions tends to increase. Conversely, when rates decline and demand begins to rise, we see a slowdown in this trend. Currently, we find ourselves at last year’s rate levels, yet with more inventory available.
Here’s the price-cut percentage breakdown for last week compared to previous years:
- 2024: 39.1%
- 2023: 39%
- 2022: 43%
I’ve been pleasantly surprised by the resilience of our pending new home price index during this softer seasonal period, even as we deal with higher inventory and mortgage rates above 6%.
The Week Ahead: Jobs Week!
Hold on tight! This week brings a whirlwind of economic data that could shape the market—it’s jobs week! We’re set to receive several pivotal reports, including job openings, the ADP report, jobless claims, and the all-important BLS Jobs report on Friday. With yields already showing a significant drop, it’ll be fascinating to see how mortgage rates respond. Plus, we’ve got ISM data, bond auctions, and talks from several Fed presidents scheduled. So, buckle up, and let’s keep a close eye on how the bond market reacts to this week’s developments!
