Housing Market Thankful For Lower Rates But The True Test is in Early December

NOTE: this is an early version of the weekly newsletter that normally comes out on Friday.  There will be no newsletter on Friday due to the Thanksgiving holiday.

Mortgage rates have fallen significantly in November. For the housing market, it couldn't come at a more critical time, but the road ahead remains uncertain--mostly due to timing.

Here's what we're up against in terms of home sales (includes the most recent monthly result released this week):

20231122 nl1.png

Keep in mind that the market for EXISTING homes has been under more pressure compared to NEW homes.  Some would say this is due to builders being able to offer financing incentives big enough to help buyers overcome affordability issues created by the highest rates in decades.  Others would say that it's hard to sell many existing homes if people aren't interested in listing them for sale.  Neither are wrong.

20231122 nl2.png

About those "highest rates in decades"... that's not exactly the case thanks to the past 4 weeks of improvement.

20231122 nl5.png

Mortgage applications are already acknowledging the shift.

20231122 nl4.png 

The bigger drop earlier in the month was due to a mix of economic data and events that happened to arrive at the same time that the Fed confirmed its rate outlook wasn't quite as bad as it conveyed at the September meeting (here's a recap).  Last week's inflation data helped confirm that shift.

Other advance indicators like energy prices are helping investors feel calmer about believing that inflation has a chance to keep moving back toward target levels.

20231122 nl3.png

All that having been said, it's important to remember how convincing some of the previous "false starts" have been.

20231122 nl9.png

If we zoom in on the chart above (10yr yields are a good proxy for momentum in longer term rates like mortgages), we can see the inflection point around 4.38%.  This acted as a ceiling before the September breakout and is now acting like a floor as the recent rate rally cools down.

20231122 nl6.png

Nothing about this line predicts the future.  It is merely a milestone to be crossed, and it certainly will be crossed.  Timing is the only uncertainty.

Economic data and inflation have helped get us this far and the same factors will be critical in determining the next step.  That said, not just any economic data will do.  There are only a handful of top tier reports that markets rely on for validation of highly consequential decisions.

The last time we saw any such data was last Tuesday and Wednesday.  It's no surprise that subsequent days have been less volatile by comparison.  The next glimpse of similarly important data will be the first full week of December culminating in the next jobs report on Friday the 8th. 

This isn't to say that the upcoming week has nothing to offer.  Rather, it could only be viewed as an opening act for the big show coming up in the following week.  As always, interest rates thrive on uncertainty and economic weakness.  The weaker the labor market, the more certain it becomes that 10yr yields will be moving (and staying) below 4.38%--a milestone that suggests mortgage rates in the low 7% range.

Recently Released Economic Data

Time Event Actual Forecast Prior
Monday, Nov 20
13:00 20-Yr Bond Auction (bl) 16
Tuesday, Nov 21
10:00 Oct Existing home sales (ml) 3.79M 3.9M 3.96M
Wednesday, Nov 22
7:00 Nov/17 MBA Refi Index 359.9 354.3
7:00 Nov/17 MBA Purchase Index 138.4 133.2
8:30 Nov/18 Jobless Claims (k) 209K 225K 231K
8:30 Oct Durable goods (%) -5.4% -3.1% 4.7%
8:30 Nov/11 Continued Claims (ml) 1840K 1865K
10:00 Nov Consumer Sentiment (ip) 61.3 60.5 63.8
10:00 Nov Sentiment: 1y Inflation (%) 4.5% 4.4% 4.2%
10:00 Nov Sentiment: 5y Inflation (%) 3.2% 3.2% 3%
Monday, Nov 27
7:50 Oct Building permits: number (ml) 1.498M 1.487M 1.471M
10:00 Oct New Home Sales (ml) 0.679M 0.723M 0.759M
10:00 Oct New Home Sales (%) (%) -5.6% 12.3%
11:30 2-Yr Note Auction (bl) 54
13:00 5-Yr Note Auction (bl) 55
Tuesday, Nov 28
9:00 Sep FHFA Home Price Index m/m (%) 0.6% 0.4% 0.6%
9:00 Sep FHFA Home Prices y/y (%) 6.1% 5.6%
9:00 Sep Case Shiller Home Prices-20 y/y (% ) 3.9% 4% 2.2%
9:00 Sep CaseShiller 20 mm nsa (%) 0.2% 0.4%
13:00 7-Yr Note Auction (bl) 39
Wednesday, Nov 29
7:00 Nov/24 MBA Purchase Index 144.9 138.4
7:00 Nov/24 MBA Refi Index 327.8 359.9
8:30 Q3 GDP (%) 5.2% 5% 2.1%
Thursday, Nov 30
8:30 Nov/25 Jobless Claims (k) 218K 220K 209K
8:30 Nov/18 Continued Claims (ml) 1927K 1872K 1840K
8:30 Oct Core PCE Inflation (y/y) (%) 3.5% 3.5% 3.7%
8:30 Oct Core PCE (m/m) (%) 0.2% 0.2% 0.3%
9:45 Nov Chicago PMI 55.8 45.4 44
Friday, Dec 01
10:00 Nov ISM Manufacturing PMI 46.7 47.6 46.7

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