Market Review - March 3rd, 2024

Market Review - March 3rd, 2024

A few weeks ago, the Consumer Price Index (CPI) report for January surprised to the high side, suggesting that inflation picked up a bit to start 2024. It was enough to kick long-term interest rates and mortgage rates higher, and another leg up came after the minutes of the January Fed meeting were released and suggested that the Fed was in no hurry to start cutting policy rates.

Home builders have been increasingly optimistic over the last few months, but consumers aren't exactly buying new homes in droves. Sales of new homes rose by 1.5% in January to a 661,000 annualized rate of sale, and while this is the highest figure in the last three months, it's also a figure barely better than during the same period a year ago. In addition, December's initially reported sales were revised downward by 13,000 units, so there's a reasonable chance that January featured little or no improvement, too. What didn't change is that there are still 8.3 months of supply of new homes available to buy sale at the present rate of sale; the actual 452,000 annualized units the most available since October 2022. Home prices remain high, and the median price for a new home sold in January was $420,700, increasing from December to start the year. Like those for existing homes, prices of new homes are starting the spring homebuying season in a firm stance, although the latest median price was about $12,000 less than January 2023.

Builders are enthused because they know there is still very little available to buy in the existing home market, the largest segment of the housing market. Existing home sales seem poised to start the spring in a sluggish manner, as the National Association of Realtors Pending Home Sales Index for January declined by 8.3% compared to December -- and is also 8.8% below levels seen in January 2023. This measure of signed contracts to purchase existing homes precedes closed sales by 45 to 60 days; as such, sales for February and especially March are likely to be lower than the current pace, not that it's all that strong now. Existing home sales tallied an annualized 4 million rate in January, so look for sales figures somewhat less than this in the coming months.

Requests for mortgage credit also point to more sluggishness ahead, too. The Mortgage Bankers Association reported that mortgage applications declined by 5.6% in the week ending February 23, and have now declined in four of the last five weeks. Applications for funds to purchase homes retreated by 4.5%, a fifth consecutive weekly decline, while those for mortgages to replace existing loans settled back by 7.3%, a third drop in a row. Lower mortgage rates in January and into early February (and typical seasonal effects) helped mortgage activity pick up a little bit to start the year, but higher rates in recent weeks have again damped action to a considerable degree.

It's less than three weeks until the next Fed meeting, when we'll get a new sense of how central bank members see all of this. Provided there are no surprises between now and then, underlying yields and mortgage rates may be able to hold these levels until then or perhaps even improve a little bit. Looking at how yields and other influencing factors moved this last week; it appears that stable to perhaps slightly lower mortgage rates should be in store for this week. If a decline does come, it will be modest, likely not more than a fall of three or four basis points in the average offered rate for a conforming 30-year FRM as reported by Freddie Mac come Thursday.

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