Current Economic Indicators Influence Housing Market Trends
The Federal Open Market Committee (FOMC) recently announced that economic activity continues to grow steadily. The statement highlighted that the unemployment rate remains low and labor market conditions are strong, although inflation rates are still above desired levels.
Mortgage Rates Stabilize Amid Declining Demand
This week, mortgage rates have steadied, with the average 30-year conforming loan rate approximately 30 basis points lower than it was at the beginning of the year, as reported by HousingWire’s Mortgage Rates Center. However, data from the Mortgage Bankers Association (MBA) indicates a 6.2% decline in mortgage demand for the week ending March 14.
Fed Policy’s Role Amid Political Pressures
Logan Mohtashami, Lead Analyst at HousingWire, remarked that the discourse surrounding interest rates is likely to intensify. He noted that Federal Reserve Chair Jerome Powell has been working to maintain independence from political pressures, particularly as government officials advocate for lower rates to encourage economic growth.
Mohtashami emphasized the importance of the Federal Reserve’s control over the bond yields and mortgage rates, stating, “If the economy tumbles into a recession, the opinions of the White House or Federal Reserve will take a back seat — the real drivers will be falling bond yields and mortgage rates.”
Potential Recession and Its Impact on Housing
Odeta Kushi, Deputy Chief Economist at First American Financial Corp., acknowledged increasing recession risks but urged caution regarding its implications for the housing sector. She stated, “A recession alone doesn’t necessarily lead to a housing downturn. The housing market’s performance depends on the causes of the recession and how the Fed responds.”
Kushi pointed out that when economic slowdown occurs, the Federal Reserve typically reduces interest rates to stimulate growth. Consequently, lower mortgage rates can make home buying more affordable, potentially counteracting some downturn effects. Historical trends show that rate cuts during past recessions have encouraged home sales.
Outlook on Home Sales
First American has projected a 1% increase in existing-home sales for February compared to the previous month, reflecting a 4.7% year-over-year rise. This optimism comes despite the prevailing uncertainties in the market.
Market Reactions and Developer Strategies
Mortgage lenders, such as Kiavi, a private lender focusing on real estate investors based in San Francisco, are closely monitoring Federal Reserve policies to assess borrower demand. Kiavi’s CFO, Tim Lawlor, commented on the anticipated market fluctuations over the next six to nine months, predicting stabilization in the following 18 months as the Fed offers clearer insights on its interest rate strategy into 2025.
Lawlor also discussed challenges facing real estate developers, including rising building material costs driven by tariffs and a labor shortage in the construction sector. He noted a softening in previously strong markets like Texas and Florida while areas in the Midwest and Northeast continue to display resilient performance.
Advice for Real Estate Investors
As market dynamics shift, Lawlor cautioned real estate investors to be mindful of increasing days on market for home sales in certain areas. “Real estate investing is based on a margin of safety: buy at the right price, have exit options, and stay in tune with local trends,” he advised.
Editor’s Note: This article will be updated as new information becomes available.