In 2022, we experienced the most significant decline in home sales ever when mortgage rates soared from 3% to 7%. I’ve observed that our weekly Housing Market Tracker data improves when mortgage rates move from 6.64% toward 6%. We don’t need mortgage rates back to 3, 4 or 5% to see a meaningful improvement in home sales — we just need 6%. Here’s why.
Purchase application data in 2025
Now, mortgage rates only recently broke under 6.64% but the purchase application data has had a positive year so far. What gives?
Purchase application update from today’s data:
- Increased by 2% week over week
- Increased by 18% year over year
- Achieved 27 consecutive weeks of positive year-over-year data
- Recorded 14 consecutive weeks of double-digit year-over-year growth
Since late 2022, when mortgage rates dropped from 6.64% to 6%, there has been a significant improvement in week-to-week data. So far this year, with rates staying above that level for most of the year, we have seen good growth compared to the previous year, but the week-to-week numbers have not been as strong. For instance, when mortgage rates fell toward 6% last year, the weekly purchase application data showed an 18-week trend with 12 positive weeks, 5 negative weeks, and 1 flat week.
In contrast, this year, before rates dropped below 6.64%, we experienced 13 positive weeks, 10 negative weeks, and 5 flat weeks. Overall, the week-to-week data last year was more favorable, which contributed to a few hundred thousand additional home sales. However, we have not yet seen similar growth in sales this year.
In late 2022, when rates approached 6%, there were 12 consecutive weeks of positive data, which resulted in one of the largest month-to-month sales figures ever recorded — almost 500,000 sales. If mortgage rates head down toward 6% again, we will get to test it for the third time.
Homebuilder confidence also gets better at this level
When mortgage rates approach 6%, we typically see an increase in homebuilder data. This indicates a rise in their confidence, along with improvements in subcomponents such as traffic and prospective buyer metrics. As you can see in the chart below, we have had times when all the data moves higher and then fades out as mortgage rates head higher.
Homebuilders treat homes as a commodity, so when they notice the advantages of mortgage rates around 6%, their surveys usually reflect this improvement, leading to better new home sales data. In recent years, builders have managed to buy down mortgage rates to below 6%, which is why their home sales remain at levels similar to those in 2019. A significant portion of this rate reduction has come from large publicly traded builders, whose stock performance tends to improve when rates drop toward 6%. However, the survey mentioned earlier primarily focuses on smaller homebuilders.
Conclusion
I analyze charts daily, and when I say that housing demand tends to improve as mortgage rates approach 6%, I’m not just throwing out random numbers; there’s substantial data to support this claim. Since late 2022, mortgage rates have not experienced a consistent drop below 6%. However, the new home sales sector is currently performing at levels similar to 2019, which was in a market with sub-6% mortgage rates.
If existing home sales were able to take advantage of similar rates, we could potentially see an increase of up to half a million additional home sales. To put this into perspective, existing home sales in 2019 were around 5 million, whereas we have been hovering around 4 million for the past few years. Therefore, the data above illustrates why a 6% mortgage rate is significant.