Freddie Mac's weekly average dipped from a 52-week high, and Thursday's bond rally came too late to show up in it. Homebuilder shares jumped about 4.5%, with PulteGroup and NVR rising despite earnings shortfalls.
The average rate on a 30-year fixed mortgage fell to 7.32% this week from 7.40%, Freddie Mac said on Thursday. The 15-year average slipped to 6.68% from 6.71%. A year earlier, the 30-year rate was 6.19%.
Last week's 7.40% was the highest reading of the past 52 weeks, so the move is the first step down from that peak. It is a small one. Borrowers still face rates more than a full percentage point above where they were a year ago.
The bigger move came later. Freddie Mac's survey largely reflects rates quoted earlier in the week, so Thursday's slide in long-term Treasury yields, with the 10-year falling below 5% to about 4.96%, probably is not yet in the number. Mortgage rates tend to track the 10-year yield.
Builders rose on misses
Homebuilder stocks treated the day as good news. The iShares U.S. Home Construction ETF was up 4.5% at about $90.50 at 1:46 p.m. Eastern, off a session low of $86.02. The fund's 52-week range runs from $82.08 to $115.26, so even after Thursday's gain it sits much closer to the bottom.
Two builders that reported results did not give the group much help on fundamentals. PulteGroup earned $2.53 a share, below the $2.65 analysts expected, yet its stock rose about 4.7%. NVR earned $89.45 a share against a forecast of $102.77, and its shares gained about 3.3%. Lennar, which did not report, rose 7.6%, and D.R. Horton gained 5.3%.
When stocks rise on earnings misses, investors are usually trading something other than the quarter. Here, the most visible candidate is the rate outlook, since homebuilders sit near the top of the list of rate-sensitive sectors. The day's moves are consistent with that, though no single cause can be pinned down.
Demand has not turned yet
The other side of the trade is that housing demand remains weak. Listings platform Homes.com, owned by CoStar, reported that September sales fell 6% from a year earlier while inventory rose 1.9%. More supply and fewer buyers is not a backdrop that a few tenths of a point on mortgage rates will fix quickly.
The bull case rests on the direction of rates rather than their level: if this week's decline from 7.40% is the start of a trend, and Thursday's bond rally holds, next week's survey could show a larger drop.
What to watch
Next Thursday's Freddie Mac survey, which will capture this week's bond move, and the Fed's Oct. 27 to 28 meeting. A December rate hike, which prediction markets still lean toward, would push the other way.