Will mortgage rates keep heading lower?

Mortgage Rates and the 10-Year Yield

The 10-year Treasury yield serves as the primary benchmark for mortgage rates in my housing analysis. In my 2024 forecast, I projected the 10-year yield would trade between 3.21% and 4.25%, with 3.37% as a critical threshold. Firm economic data should prevent yields from breaking below 3.21%, while weakening labor markets could test the 3.37% level. This implies mortgage rates should remain in the 5.75%-7.25% range, assuming unfavorable spreads persist throughout the year.

Despite the 10-year yield exceeding 4.25% this year, mortgage rates have not reached 7.25%, indicating spreads have performed better than anticipated. We avoided a potential rate spike when the 10-year yield approached but did not breach 4.34%—a level that could have pushed mortgage rates back toward 8%. The yield has repeatedly bounced from this resistance level, and last week, despite strong jobs data and Powell's testimony, it declined, bringing mortgage rates down to 6.85%.

Chart analysis shows the 10-year yield has traded between approximately 3.80% (support) and 4.34% (resistance) recently. Without new critical global events, this range is likely to hold. A weakening U.S. dollar supports this outlook, as excessive dollar strength would be difficult for global markets to absorb. Powell confirmed Fed policy remains restrictive, suggesting the central bank would adopt a more dovish stance if yields break above 4.34% to prevent policy from becoming overly tight. This dynamic creates a self-correcting mechanism where market pressures could prompt policy adjustments before rates reach destabilizing levels.

Purchase Application Data

As mortgage rates rose from 6.63% to 7.16% earlier this year, we experienced five consecutive weeks of declining purchase applications—a pattern absent in 2023. Last week, however, brought a reversal: declining rates triggered 11% week-over-week growth in purchase applications. This rebound demonstrates the sensitivity of buyer activity to even modest rate improvements, particularly when pent-up demand exists.

Since November 2023, we have recorded nine positive and five negative weekly purchase application readings after holiday adjustments. Year-to-date, the split stands at three positive versus five negative prints. This mirrors the 2023 pattern when rates were rising, though last year's activity began from a depressed home sales base. The current market benefits from ready buyers, and even modest improvements in rates can meaningfully impact activity given historically low home sales levels.

Weekly Housing Inventory Data

Year-over-year inventory growth has been a positive housing story in 2024, albeit from depressed levels. Moving further from the unsustainable market conditions of March 2022 improves long-term outlook. Notably, last year's seasonal inventory bottom occurred on April 14—the latest ever recorded—suggesting year-over-year comparisons will show stronger growth than usual, as typical seasonal lows appear in January or February. This atypical timing creates a favorable base effect for year-over-year measurements throughout much of 2024.

Last week's inventory data showed:

– Weekly inventory change (March 1-8): Increased from 498,339 to 500,579

– Same week prior year (March 2-9): Decreased from 419,419 to 413,199

– All-time inventory bottom: 240,194 (2022)

– 2023 inventory peak: 569,898

– For context, 2015 active listings this week: 971,965

The week-over-week increase of 2,240 active listings, while modest in absolute terms, represents a meaningful shift from the previous week's trajectory and contrasts with the year-ago decline. This suggests that lower mortgage rates may be beginning to incentivize sellers to list properties, though the overall inventory level remains well below historical averages and pre-pandemic norms.

New Listings Data

New listings continue year-over-year growth but remain below desired levels for 2024. I had hoped for a stronger rebound given how low this metric fell in 2023. Nonetheless, any growth is positive, and matching spring 2021-2022 levels would represent meaningful progress toward market normalization.

Weekly new listing figures for the last week across recent years:

– 2024: 59,243

– 2023: 50,687

– 2022: 59,661

– Historical context (2011): 362,248 new listings this week

The year-over-year increase of 8,556 new listings indicates gradual improvement in seller confidence, though current levels remain only about one-sixth of the volume seen in 2011. This substantial gap highlights the lasting impact of recent market dynamics on seller behavior.

Price-Cut Percentage

Annually, approximately one-third of homes undergo price reductions before sale—a normal, seasonal market function. The price-cut percentage tends to rise when higher mortgage rates suppress demand and falls when rates decline, stimulating buyer activity. This relationship makes the metric a valuable indicator of how financing conditions influence seller pricing strategies.

With current inventory levels above last year's and a potential seasonal bottom already established, we may see increasing price-cut frequency as the year progresses. This metric helps isolate the mortgage rate variable's influence on seller behavior, particularly as inventory adjustments respond to changing demand dynamics.

Recent weekly price-cut percentages:

– 2024: 30.5%

– 2023: 30.6%

– 2022: 16.7% (when inventory was at all-time lows and rates were sub-4%)

The current rate of approximately 30.5% reflects a return to more typical historical levels after the anomalously low percentage seen in 2022. That year's exceptionally low figure resulted from the combination of ultra-low rates and severely constrained inventory, which reduced sellers' need to adjust prices.

Week Ahead: Inflation Week

We are transitioning from jobs week into inflation week, with upcoming CPI and PPI reports. The CPI data will be closely watched following prior reports that included an anomalous OER reading which artificially inflated the figures. Market participants will assess whether this distortion normalizes in the current or next report, as persistence could influence Fed policy expectations and longer-term rate trajectories.

The ongoing apartment market cycle—transitioning from boom to bust—continues to generate disinflationary pressure through rental markets. If inflation readings come in softer than expected, it could support continued mortgage rate declines this week by reinforcing expectations of a less restrictive monetary policy stance. Conversely, hotter-than-anticipated data might prompt renewed concerns about inflation persistence, potentially limiting further rate improvements.

What this means

The housing market faces competing influences: declining mortgage rates are stimulating purchase applications and supporting inventory growth, yet new listings and overall activity remain subdued compared to historical averages. The 10-year yield's range-bound behavior between 3.80% and 4.34% suggests mortgage rates may continue finding support near current levels unless economic data shifts significantly. With inflation week approaching, softer CPI/PPI readings could reinforce the downward rate trajectory, potentially improving affordability and encouraging greater market participation. However, the persistent gap between current activity levels and pre-2022 norms indicates recovery will be gradual, dependent on sustained rate improvements and renewed seller confidence to bring more inventory to market.