The Presidents Day holiday weekend marks the start of the home buying season
The housing market traditionally kicks off in full swing during the Presidents Day holiday weekend in February, with buyers eagerly searching for properties until the end of May. However, after a sluggish year in 2023 due to high mortgage rates, experts predict that the 2024 housing market will face an important litmus test during this year’s holiday weekend. All eyes are on whether the first quarter of the year will bring a rebound in the housing market, as forecasters anticipate a growth in sales of previously owned homes. While estimates differ on the magnitude of the expansion, there is optimism that a strong spring season lies ahead.
Strong economic data and interest rates could impact housing demand
While expectations for a vibrant home buying season are high, there are potential obstacles that could create bumps in the road. Factors such as strong economic data and a Federal Reserve that delays interest rate cuts could impact the 10-year Treasury yield, which serves as an important benchmark for mortgage rates. An increase in the benchmark rate could temporarily weaken housing demand during the spring. However, there are positive signs of growing demand, with an increase in loan prequalifications indicating that buyers are preparing for the upcoming season. Touring activity has also ramped up, suggesting that potential homebuyers are actively looking for properties.
Consumer sentiment and mortgage rates
January saw an improvement in consumer sentiment, with consumers feeling more secure in their jobs and expressing optimism about falling mortgage rates. For the first time in the history of Fannie Mae’s National Housing Survey, more consumers believe mortgage rates will decrease in the coming year, rather than increase. Consumers and economists are aligned in their belief that mortgage rates will trend lower in 2024 as the Federal Reserve cuts rates. However, the control of mortgage rates lies in the market expectations for the economy, indicated by the movement of the 10-year Treasury yield.
Economic data and inflation risks
Mortgage rates can fluctuate based on economic data and commentary, which was evident earlier this month when Federal Reserve chair Jerome Powell expressed his expectations that rates would not be cut in March. Additionally, stronger-than-expected economic data raised concerns about inflation. Employment data revisions and continuing wage growth could push inflation above the central bank’s 2% target, posing a risk to the housing market. Economists will closely watch the upcoming consumer price index report for signs of inflation trending in the right direction. If there is an unexpected increase, it could drive Treasury yields, and subsequently mortgage rates, higher.
Recent trends and the impact on home sales
Recent data suggests that the increase in daily rates has coincided with a decline in home purchase contract signings. Pending sales in the four weeks leading up to February 4th saw a significant drop of 7.8% compared to the previous year. The decline in demand at this early stage may be attributed to rising mortgage rates and harsh winter weather, which has kept potential homebuyers indoors. Mortgage rates will once again be a major factor influencing home sales this year. Various forecasts from leading institutions anticipate a decrease in rates, with the expectation that they will end the year around 6%.
By Shaina Mishkin
Analyst comment
Positive news: The Presidents Day holiday weekend marks the start of the home buying season.
Neutral news: Strong economic data and interest rates could impact housing demand. Consumer sentiment and mortgage rates. Economic data and inflation risks.
Negative news: Recent trends and the impact on home sales.
As an analyst, it is expected that the housing market will experience increased activity during the Presidents Day holiday weekend, potentially indicating a rebound in the market. However, potential obstacles such as strong economic data and interest rates could temporarily weaken housing demand. Consumer sentiment and mortgage rates are showing positive signs, but economic data and inflation risks pose a threat. The recent decline in home purchase contract signings may be due to rising mortgage rates and harsh weather conditions. Overall, there is optimism for a strong spring season, but fluctuations in rates and inflation need to be closely monitored.
