Since the weaker CPI data was released in November, bond yields and mortgage rates have been heading lower. The question then was: What would lower mortgage rates do to this data? Now, with five weeks of data in front of us, we can say they have stabilized the market.

Purchase application data came out on Wednesday and the week-to-week data was down 3%, breaking the streak of four straight weeks of growth. The year-over-year data declined 40%, the smallest year-over-year decline since Oct. 19.

For months I have been saying we were going to have challenging comps from October to January because last year at this time mortgage volume was rising — a rare event this late in the year.

Because of that, we should all expect declines of 35%-45% year over year during this period. If things were getting weaker, 53%-57% negative year-over-year declines would be in play. However, mortgage rates have fallen more than 1% since the recent highs, so it’s time to look at the data to explain how to interpret it.

The bleeding has stopped

First and foremost, the bleeding has stopped in this data line, but the context is critical here. We had a waterfall dive in this data line and adjusting to the population, we hit an all-time low, so let’s put the bounce from the lows in context. This isn’t like the COVID-19 recovery where the data was getting noticeably better on a year-over-year metric; the purchase application data just stopped going down.

For now, just think of it as stabilization and we need to see more of this to make a valid premise that the worst is behind us.

As you can see from the chart above, the last several years have not had the FOMO (fear of missing out) housing credit boom we saw from 2002-2005. Accordingly, we also haven’t had a credit bust in the data line.

What I mean by a credit bust is that after the housing bubble burst in 2005 into 2006, we saw a massive increase in supply. These were forced credit sellers, which means these sellers don’t sell to buy a home like a traditional seller does. Since they were distressed forced sellers, inventory skyrocketed in 2006 and stayed very elevated in 2007 and 2008.

As we can see below, none of that is happening today because the seller isn’t stressed.

Total inventory levels

NAR: Total Inventory levels 1.22 million
Historically inventory levels range between 2 million and 2.5 million, the equilibrium balance between a buyer and seller marketplace that has been here for four decades. Only from 2006-2011 did we see this break due to forced sellers who couldn’t buy homes.

Using Altos Research, which tracks up-to-date weekly data, we can see that inventory is having its traditional seasonal decline now. Remember that inventory is always seasonal; it rises in the spring and summer and fades in the fall and winter.

One issue that has created a waterfall dive in purchase application data and sales is that new listing data is declining faster than usual. That’s a double whammy on demand and a reason for the waterfall in existing home sales data.

Traditionally, when mortgage rates rise post-2012, home sales trend below 5 million. This time the hit on demand is much more challenging as we are working from a savagely unhealthy rise in home prices since 2000, and mortgage rates have skyrocketed in the most prominent fashion in modern history.

Mortgage rates went from a low of 2.5% to a high of 7.37% — purely savage. Naturally, with those two variables in place, demand will collapse.

Since the summer of 2020, I have believed the housing market could change in terms of cooling down, but it would require the 10-year yield to break over 1.94%. This was something that wouldn’t happen in 2020 and 2021, based on my forecast.

However, 2022 was going to be the first year this could happen if global yields rose. Well, not only did that happen, but with the Fed’s aggressive pivot, the Russian invasion, and the stronger dollar, the 10-year yield and mortgage rates have had a historical ride this year.

Also, I believed the risk to the housing market was if home prices grew more than 23% over the five years of 2020-2024. Well, that happened in just two years, so my affordability models are off the charts. Since 2013 I have said that mortgage rates over 5.875% would be problematic to housing. Rate above 7% made things even worse.

With that said, bond yields and mortgage rates have been falling noticeably since the weaker inflation data. We are on the verge of mortgage rates getting below 6% soon.

So what to make from all this data? Think of it as a stabilizing impact; for now, it doesn’t represent a rebound in demand or anything in that light.

If mortgage rates can get toward 5% and stay there for a while, that would be the best thing to try to get the housing market out of a recession. We have to remember that purchase application data looks out to 30-90 days, so the recent stabilizing data line most likely won’t show up in the reports until January or February, which really means the months of February and March since the data is backward looking.

Also, we need significant context with this survey data line; it just got hit with a massive demand destruction wave that impacted first-time homebuyers and sellers, who would typically buy homes as well.

All we have done here in the data is stop the bleeding. The peak year-over-year decline was 46% on Nov. 16, and now we are showing a drop of 40%, so even the better year-over-year data needs context.

We will know when housing is getting better when the year-over-year declines get less and less, and then at some point, we will show positive growth since the bar is so low. However, we aren’t at that stage yet. For now, as long as mortgage rates head lower, that is a positive move for the housing market.

The last year has been a completely split housing market — one that started with the lowest inventory NAR has recorded dating back to 1999 and one with low mortgage rates. In the first few months of 2022, primary-residence buyers and second-home buyers (investors and vacation buyers) flocked to the market at a frenzied pace under the correct assumption that mortgage rates would rise.

The market has now faced a contraction in existing-homes sales for nine consecutive months, while home prices and rates rise. The housing affordability crisis has pushed potential buyers to the sidelines. 

Unfortunately, the frenzied pace of the real estate market at the beginning of 2022 coupled with the affordability crisis and low inventory throughout the year means first-time buyers were left out. At the height of the spring market, the typical home had 5.5 offers, according NAR’s REALTORS® Confidence Index.

Potential buyers who may have had an FHA or VA loan were left behind as about one-quarter of the market was paying all cash for homes. First-time buyers dropped to the lowest share NAR has recorded in the Profile of Home Buyers and Sellers — just 26% of the market, compared to 34% the year before. A healthy historical market for first-time buyers should be closer to 40%.

One projection for 2023 is an easier buying market for first-time buyers. First-time buyers will need higher incomes to meet the higher interest rates (which may decline) and higher prices. However, a smaller pool of buyers means less competition and a larger chance to have an offer accepted. 

Due to the recent rise in mortgage rates, homeowners may just stay put. While this is bad news for the inventory crisis and potential buyers, it could be good news for remodeling contractors. Homeowners have gained housing equity in their homes consistently as home prices have risen. The typical owner who has owned their home a decade has $210,000 in housing equity. That equity could certainly make a move easier, but they may be unwilling to budge.

It is possible the needs of the homeowner have changed throughout their tenure in the home, and they may need to rethink how they use their home or just fix features and systems due for an upgrade. As owners think through remodeling projects, some may be done for their Joy Score, while others for cost and value recovered on projects. If a resource is needed, NAR’s Remodeling Impact report is a great place to start. 

For the last two years, in many markets, sellers could expect an offer quickly and above list price in many instances. For some, the idea of staging and easy remodeling fixes to sell did not need to happen to quickly obtain a buyer.

Currently, most homes are being priced competitively by REALTORS® and 24% are still selling above list price, with the typical number of days on the market at 21. However, more buyer and seller equilibrium may revitalize the need for home staging. Nearly half of REALTORS® who work with buyers say staging has an effect on buyers’ view of the home and increases the dollar value offered on the home. Four-fifths of buyers’ agents say it is easier to visualize the buyer in the future property. When attracting a buyer, why not make the product shine in the best light? 

To contact the author of this story:
Dr. Jessica Lautz at jlautz@nar.realtor

If we don’t learn from history, we are doomed to repeat it.

From 1998 to 2006, according to Freddie Mac, the median annual mortgage rate was 6.45%. At the same time, the median, annual average of existing home sales was 5.63 million units. Therefore, there were more housing sales in 1996 than there will be this year.

Mortgage rates today are not much higher than they were then. But today, there are 30 million more households (129 million) than there were in 1996 (99 million).

It goes to show what the failure to build enough homes from 2006 to the present combined with ultra-low, unrealistic mortgage rates and massive amounts of fiscal stimulus can do to the housing market. This is something that housing industry leaders should be thinking about — carefully.

The history of housing

Existing home sales hit 4 million units in 1978 for the first time. They fell by 25.3% from that level in 1980, fell another 18.8% in 1981 and by another 15.9% in 1982. Altogether, the last time the Fed hammered inflation with a rise in lending rates, housing sales fell 49% from the peak in 1978 to the trough of 1982 before bouncing upward by 39% in 1983 over 1982’s low.

One challenging historical fact is that while mortgage rates fell from 13.24% in 1983 to 7.81% in 1996, it took that long for housing sales to reach the levels they did in 1978 to 1979. During that time, total households in the U.S. grew by 16 million — just about 20% growth in the number of households in a time where housing sales were essentially flat for 17 years.

The next major downturn, which started in 2006, saw unit sales fall 10.3% from 2005 to 2006, then another 22.4% from 2006 to 2007 and another 20.9% from 2007 to 2008. There was a slight upturn in 2009, with unit sales increasing by 2.6% from 2008 to 2009. The total downturn was 44.9% in unit sales from the peak of 2005 to the trough of 2008.

While we generally understand that the unit sales of 2003 to 2005 were fed by fraudulent mortgage activities; nonetheless, unit sales in the record year of 2021 were only 4.1% ahead of those in 2003. When the average annual mortgage rate was 6.54% — or not all that much less than it is today.

How much of an impact do mortgage rates have?

Some of this data may indicate that mortgage rates have less of an impact on housing sales than we may believe. Other factors are likely to do with the explosive price increases of the last two years, especially as those relate to average household incomes.

Back to what has gone wrong. The lack of supply of new homes, both single-family detached, and multi-family (supply) has been overwhelmed by the availability of historically cheap mortgage finance and the enormous depth of financial resources of households. Recent Federal Reserve Board estimates are that American households have nearly $18 trillion of cash and marketable securities in their possession. 

This is basic economics. When demand exceeds supply you get inflation, period. 

Since the real housing market began its last recovery, it is estimated that between 4 to 5 million more households were created than houses of any kind were built. Demand crashed into supply and overwhelmed it. Too few houses and too much capital chasing them resulted in the explosion of the values of homes, apartment buildings and raw land to build them on.  This has resulted in a decline in affordability on a massive scale. 

The Fed’s attempt to cool off the economy to bring down inflation is necessary for many reasons. One of the biggest reasons is to soften housing prices so that affordability may come back to earth. However, if the country doesn’t find a way to significantly increase the supply of homes of all kinds, we will end up right back where started.

Steve Murray is a senior advisor to RealTrends and founder of RTC Consulting.

This column does not necessarily reflect the opinion of RealTrends’ editorial department and its owners.

To contact the author of this story:
Steve Murray at smurray@realtrends.com

September new home sales beat expectations, but don’t get too excited. While monthly supply rose in this report, the previous reports were all revised lower and sale levels are still historically low. New home sales are now below the recession levels of 2000 and have fallen all the way to 1996 levels, when interest rates were near 8%.

As I have always tried to stress with home sales data, we have not had a massive credit sales boom like the one we saw during the housing bubble years, so we can’t have a similar huge sales bust working from such historically high levels. This is a positive in the sense that this downturn is more manageable: sales weren’t elevated with a credit boom boosted by exotic loan debt structures, so finding that bottom level in sales is more reasonable.

From Census: New Home Sales of new single-family houses in September 2022 were at a seasonally adjusted annual rate of 603,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 10.9 percent (±15.2 percent)* below the revised August rate of 677,000 and 17.6 percent (±15.9 percent) below the September 2021 estimate of 732,000.

During the housing bubble years, new home sales, housing starts, prices and credit demand boomed to an extreme level. This was a very unhealthy setup because demand couldn’t sustain itself, and new home sales and starts were set up for a significant, rapid decline. As you can see below, we aren’t working from elevated levels today.



This doesn’t mean sales can’t fall further from here, especially with rising mortgage rates. However, it shows that the builders are better at managing their supply and demand imbalances compared to the housing bubble years. We saw some stabilization in the data when mortgage rates fell from 6.25% to 5%. However, now we are dealing with a 7% mortgage rate.

Monthly supply grew in this report, and this data line has always been crucial for my economic work over the past 10 years. 

My rule of thumb for anticipating builder behavior is based on the three-month average of supply:

• When supply is 4.3 months, and below, this is an excellent market for builders.
• When supply is 4.4 to 6.4 months, this is just an OK market for the builders. They will build as long as new home sales are growing.
• The builders will pull back on construction when the supply is 6.5 months.

From Census: For Sale Inventory and Months’ Supply, The seasonally‐adjusted estimate of new houses for sale at the end of September was 462,000. This represents a supply of 9.2 months at the current sales rate.

We are far from getting the new home sales sector out of a recession, as the monthly supply is at 9.2 months. This is a big difference from the existing home sales market, where supply has only been 3.2 months, even with the enormous demand this year. 

Builders learned their lesson

The other issue with the builders’ supply is that it took forever for the builders to build homes. When rates rose back in March, there was a considerable risk to the business model with many homes under construction.

The builders are dealing with more cancelations this year than last year. With mortgage rates spiking so much in a year, all of those homes that went into contract with rates between 3% to 4% are having issues with rates between 6% and 7%. Some homebuyers simply don’t qualify for the home with the higher rates so their transaction has to be canceled. This is one risk to the builders’ business model: when it takes a long time to finish a home, the rate rise risk is real.

The builders are mindful of managing their supply and demand imbalances. They don’t just put their heads down and build, build and build. They need to have the confidence that they’ll be able to sell the homes that they haven’t even started building yet. So, when mortgage rates rise — and they have in a significant fashion — it hits the the builders’ confidence. 

The builder supply picture:

• 1.1 months of supply is finished product
• 6.0 months of supply is still under construction
• 2.1 months of homes haven’t even started construction

We have 56,000 new homes completed for sale. We have 301,000 homes under construction — this is historically high. The number of homes that haven’t even been started sits at 105,000.

For some perspective here, imagine that all the homes that were under construction and those that haven’t even been started yet magically came to the market overnight because Santa Claus and his elves decided to help the builders out for Christmas. Currently, the builders have buyers to occupy those homes, excluding those that cancel the transaction at closing. Assume that all new home buyers cancel their contracts and those homes go into the unsold inventory category, that would push the inventory data up to 1,656,000. Which is still below the four-decade low average of 2 to 2.5 million active listings


NAR Total Existing Inventory: 1,250,000



As we can see, the housing market is still in a recession. New home sales are down so much that the monthly supply levels broke a key area for me to where the builders are stopping their new housing construction with single-family homes. 

We can also see that we don’t have that many completed homes to start with, and the homes under construction or not even started yet isn’t a big help either. However, the new home sales sector is vital for the economy as construction jobs and big-ticket items are essential here. When rates do fall, we can see that the 5% level brought some buyers into this market. When rates are above 7%, this sector will be more problematic. 

For now, the housing recession continues: sales, production, job and incomes within housing all falling together. Until mortgage rates fall, we will still be in this environment. We all should be rooting for the 910,000 two-unit housing that is still under construction to get built out for the rental market. With rental inflation falling, that will impact the inflation data and make the Federal Reserve less hawkish, especially in 2023. However, until rates fall, the new home sales sector will struggle to get supply down and demand up enough to give them the confidence to build more single-family homes.

After the GDP report came out, the bond market rallied, sending yields lower, which some people were confused about. Traditionally, when economic data gets better, the 10-year yield sells off and yields go up with mortgage rates. Similarly, when economic data gets weaker, the 10-year yield falls and so do mortgage rates.

Let’s just say, things have been wild with the bond market and mortgage rates all year! The softer economic data we had early in the year didn’t matter: Mortgage rates and bond yields have risen all year long even with back-to-back negative GDP reports in the first and second quarters.

Once the Fed pivoted toward aggressively fighting inflation and the Russian invasion of Ukraine happened in March, many things changed for mortgage rates and the bond market.

10-year yield



While the headline inflation data is cooling off its torrid pace, the core side of the equation is still rising. As we can see below, housing is 42.2% of the weighting in core CPI, and shelter inflation has the legs in 2022 to keep growing, since this data line lags. I was on CNBC in September before the CPI data was released to explain how this works.



The Federal Reserve has become a single-mandate Fed, primarily focused on fighting inflation, even to the point of saying we need higher unemployment to decrease inflation. So regardless of the economic data — the bond market, the Fed rate hikes, and the U.S. dollar have been rising together, ignoring the weaker economic data trends.

The Fed believes they can continue to hike rates because the labor market is solid, and they’re right. Job openings are still over 10 million today, and jobless claims are below 220,000, a historically low level.

I raised my sixth recession red flag on Aug. 5. The last time I had all six red flags raised was in late 2006. This is important because we had negative GDP data in the first two quarters of this year, which is why people said the U.S. was in a recession. However, the internal data lines, such as jobs, production and consumption data, weren’t as negative. We have created 3.8 million jobs so far this year, that means the U.S. isn’t in a recession.

However, the U.S. housing market is in a recession because all four factors were evident in June of this year: a drop in sales, production, jobs and incomes.

Historically, the 10-year yield and mortgage rates have moved hand in hand — nothing has been abnormal for decades. This trend direction has been here in every economic expansion and recession since 1971. Now, post-1982, bond yields and mortgage rates have fallen whenever we go into recession.

However, now the Fed is fighting inflation and has even said it won’t cut rates even if we are in a job loss recession as long as inflation data is high. I don’t actually believe them when they say this, in fact, I have written that when jobless claims data breaks over 323,000, the Fed’s aggressive tone will change with the job loss recession.



The mortgage market is broken — for now

The spread between the 10-year yield and 30-year mortgage rate has been blown out this year in an epic fashion, much like what we saw during the brief COVID-19 recession. If the Federal Reserve wanted to help the housing market get back in line, they could do so by making one statement that they would buy mortgage backed securities, and the spread would collapse.

If that happened, then mortgage rates would fall by themselves even if the 10-year yield doesn’t go lower. However, the Fed has said we are in housing reset mode, so don’t look for the Fed to help here.

The spread is getting a tad better on its own. However, we are far from the normal range of 1.6% – 1.8% spread between the 10-year yield and mortgage rates. We got to 3.0 recently, this shows you how stressed the market is. I mean, it’s a historical event. Going forward, if the spread gets better on its own, mortgage rates can fall without too much help from the 10-year yield because of the wide gap.

Fed rate hikes, inversion, recession and inflation

In 2021, we didn’t have the big Fed rate hikes in place, and some of the inflationary data were still smoking hot. That’s not the case anymore as the Fed has aggressively raised rates this year in their fight to defeat inflation.



The Fed’s favorite recessionary indicator is the 10-year yield minus the 3-month Treasury, which just recently flagged a recession. This is what the Fed has looked at in the past and has talked about as one of their leading indicators for a job loss recession. 

This has gotten their attention in the past and I believe this will get their attention now. The question is, do they care if Americans lose their jobs or not? I believe they will care when the data shows that American citizens are losing their jobs, we just aren’t there yet.



The growth rate in inflationary data, which was steaming hot in 2021, is starting to cool down. The cost to ship stuff from China to the U.S. has dramatically fallen, used car prices are rolling over and we have seen a lot of big shops talk about discounting stuff to get rid of excess inventory. 

The one data line that still has legs until 2023 is shelter inflation in CPI. Even though we see a lot of new data lines showing the growth rate of shelter is fading already, for the CPI data, it’s going to be more of a 2023 story, especially in the second half of 2023. 

Also, a job loss recession will impact these data lines more, hence why the Fed wants to see the unemployment rise. I have seen comments by the Fed acknowledging that the shelter inflation lags, so they know this data line should look much different come Halloween 2023. I recently wrote about this topic, with the construction of 910,000 two-unit homes that the builders need to get to the market next year. This should also help with slowing down shelter inflation.



As you can see, the historical rise in mortgage rates this year is truly an unprecedented event. Hopefully, you can see the difference between the market data and what we saw in October 2021. So, even though today’s GDP report was positive and the labor market is firm, we see weakness in some of the economic data lines. 

My six recession red flag model was raised on Aug. 5, and the Fed’s market indicator raised a recession red flag this week. The leading economic index has shown a lot of weakness this year, which ties nicely with historical economic cycles. So while the general economy isn’t in a recession, it’s weak enough to get the Fed thinking that they’re close to the end of the rate hike cycle, like they have talked about for some time. 

They believe they can fight inflation better with a job loss recession, and they’re getting closer to their true wish. When that happens, some inflationary data showing a slowdown should keep slowing. The bond market should rally enough to get mortgage rates below 6%.

The Fed has noted that they’re keeping an eye out on the housing market since it makes up 20% of the economy, and they have the tools in hand to get housing out of its current recession. We aren’t there yet, but the above considerations are something to think about for next year. 

What I have seen in the data is that housing stabilized when rates got to 5%. I believe the Fed saw this, too and they were upset. Next year, I expect we will have an entirely different conversation about rates and the Fed.