Have higher mortgage rates already reversed housing demand? - HousingWire
The Federal Reserve's decision to cut interest rates by 0.50% on September 18, 2024, has led to an unexpected rise in mortgage rates and bond yields. This development is noteworthy because mortgage rates had already decreased by nearly 2% from their 2023 highs, even before the Fed's rate cuts, as the bond market tends to anticipate the Fed's actions. The rise in mortgage rates post-rate cut is attributed to stronger-than-expected economic data, including housing starts, retail sales, industrial production, GDP, and labor statistics, all of which surpassed estimates.
The article highlights that mortgage rates had already reached the lower end of the author's 2024 forecast, which predicted a range of 7.25% to 5.75% for mortgage rates and 4.25% to 3.21% for the 10-year yield. The author emphasizes the importance of monitoring economic data to identify key inflection points for rates, describing this process as a "slow dance" between the 10-year yield and 30-year mortgage rates. The recent strong economic data, particularly the jobs report, which aligned closely with the author's labor forecast, has contributed to the rise in the 10-year yield and mortgage rates.
The article also discusses the positive trend in mortgage spreads in 2024, contrasting it with the negative trend in 2023. The improvement in spreads has prevented mortgage rates from reaching 7%, which would have been the case if the worst spreads from 2023 were applied today. Despite this improvement, current spreads are still 0.76% higher than the low levels of 2022.
Additionally, the article notes that the recent increase in mortgage rates is likely to end a six-week streak of consecutive positive growth in purchase applications. Last week, purchase applications saw a 9% year-over-year increase, marking two consecutive weeks of positive year-over-year data. However, it's important to consider that last year's mortgage rates were approaching 8%, creating a low comparison base for this year's data.
