Mortgage rates and the 10-year yield
The 10-year yield has had a wild ride this week, especially during overnight trading. The 10-year yield hit a high of 4.93% after hours on Halloween, then dropped as low as 4.48% on Friday. As I have stressed, mortgage rates move with the 10-year yield, and we saw a noticeable move lower this week.
So what happened triggered the drop? Three of the four labor reports were softer than anticipated on jobs week. At this stage of the economic cycle, softer labor market data is vital not only for the Fed to pivot, but for the 10-year yield and mortgage rates to go lower.
Job openings data was fine, but the ADP jobs report came in as a miss, jobless claims came in worse than anticipated, and the jobs Friday report showed a slowdown in job and wage growth.
The Fed had its meeting on Wednesday and didn’t hike rates, but added the term that financial conditions and credit conditions now will lead to lower economic activity in the future. These variables put together sent bond yields and mortgage rates lower, and the slow dance between the 10-year yield and mortgage rates continued as it has since 1971.
Weekly housing inventory data
All I want for Christmas is one week of active inventory growth to be between 11,000-17,000 and not even Santa Claus can help me out here because the inventory growth rate has slowed down once again. I am running out of time as seasonality is kicking in, which means we are getting closer to the seasonal inventory decline for 2023. It looks like I will bat a whopping 0 in 2023 for my higher rates inventory growth level forecast.
Last year, the seasonal peak for housing inventory was Oct. 28, according to Altos Research. We might have reached the peak in inventory last week or next week.
- Weekly inventory change (Oct. 27-Nov. 3): Inventory rose from 562,556 to 566,882
- Same week last year (Oct. 28-Nov. 4): Inventory fell from 578,089 to 574,973
- The inventory bottom for 2022 was 240,194
- The inventory peak for 2023 so far is 566,882
- For context, active listings for this week in 2015 were 1,140,753
New listings data has been trending at the lowest levels ever for 15 months now, and not too much has changed from that trend. Six weeks ago, I talked about the new listings data and how we should have some flat to positive year-over-year prints on CNBC. That has happened, but I caution people not to read too much into this. We need to find growth in this data line during the spring and early summer months of the year so we can regain the levels we had in 2021 & 2022.
Weekly new listings data for this week:
- 2023: 51,986
- 2022: 51,144
Traditionally, one-third of all homes have price cuts before they sell. When mortgage rates rise and demand decreases, the percentage of homes with price cuts can grow. This is the crazy stat for 2023: even with higher home prices and higher speeds, not only is inventory still negative year over year, but the price cut percentages are still running 4% below last year. Here are the price cut percentages for this week:
- 2023: 39%
- 2022: 43%
- 2021: 28%
Purchase application data was down 1% last week versus the previous week, making the year-to-date count 18 positive prints, 23 negative prints, and one flat week. If we start from Nov. 9, 2022, it’s been 25 positive prints versus 23 negative prints and one flat week.
The week ahead: Will mortgage rates keep falling?
We won’t have a lot of economic data this week, but after the wild week we just had, the one thing I will be watching is whether the bond market gives back some of its gains and whether we see a noticeable boost in purchase application data. The bar is low for purchasing apps to grow. This is similar to what happened a year ago when rates started to fall, but then we rates were falling for some time. For purchase applications to grow, we need mortgage rates to fall and stay low with duration.
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