Have we seen the bottom in mortgage rates for 2024 after a crazy roller coaster ride so far this year? My 2024 forecast had a mortgage rate range of 7.25%-5.75%. To get to the lower end of this range, we needed to see two things: the labor market getting softer and the mortgage spreads improving. This is the double-whammy impact, and that’s what has happened.

However, it’s still September, and we have three months to go! Can my lowest range forecast be wrong?

Yes, here’s how and why.

10-year yield and mortgage rates

My 2024 forecast included:

• A range for mortgage rates between 7.25%-5.75%
• A range for the 10-year yield between 4.25%-3.21%
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How rates get to the lower-end range of the forecast is critical. There are two variables: the labor data getting softer is the prime one and the second one is the spreads getting better. Again, the double whammy of lower yields and spreads. This is not about more Fed rate cuts, because the market has priced in a lot Fed rate cuts already, but they haven’t priced in a recession yet. People wonder why rates went up after the bigger than expected Fed rate cut, as shown in the chart below. I talked about this in this HousingWire Daily podcast.

With the 10-year yield at 3.74% as of Friday, we have some room left to reach the very bottom of the 2024 forecast before the year is out. However, this will need the labor and economic data to get much weaker. That’s the first variable — the second one is the spreads.

Mortgage spreads

The mortgage spread story has been positive in 2024, whereas it was negative in 2023. We have seen a big move, which has helped, and we still have some runway left to return to historical norms. This can help get mortgage rates down toward 5.75%. If we took the worst spreads from 2023 and incorporated those today, mortgage rates would be 0.68% higher. At the same time, we are far from average with the spreads, as we are still 0.85% higher today than the low levels of 2022 in the chart below. 

Purchase application data

Purchase applications had another positive week, making the winning streak four weeks in a row — the longest of the year. Last week, purchase apps grew 5% weekly and fell 0.4% year over year. The slight decline year over year is the smallest decline since 2022. However, remember that last year at this time, mortgage rates were heading toward 8%, so the year-over-year comps will be easy to beat. That said, we have had a material change in data in the last 15 weeks.

This is what weekly purchase application data looked like with rising rates starting from the latter part of January:

• 14 negative prints
• 2 flat prints
• 2 positive prints
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As you can see, this was shaping up to be a highly negative year with the weekly application data. Before late January when rates started to rise, we had about eight weeks of positive trending purchase apps, and then the rising rates zapped the data in a very negative curve.

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