Mortgage rates have been holding in a tight range for about the last two months now, but a market reset of expectations for the timing of cuts in short-term interest rates by the Federal Reserve will see them kicking higher by the time the week is through. While not so much reflected in last week's rate-survey data from Freddie Mac, the influential yield on the 10-year Treasury has powered measurably higher this week and this move is being and will be reflected in mortgage rates this week. On Friday 2/2, the yield on the 10-year note closed the day at 3.87%; it closed Friday this week at about 4.17%. While small fluctuations from day to day or week to week may not be reflected in mortgage rates, a change of about a third of a percentage point certainly will be.
With the passing of Groundhog day, we're starting to ease into the early part of the spring homebuying season, which begins in the south and west and spreads its way north and east along with longer days and warmer temps. Firmer mortgage rates won't be especially welcomed by potential homebuyers, but in reality, they aren't all that much higher than where they were at this time a year ago, While certainly not low, financing costs aren't what will keep sales in the existing home market from improving this spring, but rather the same other issues that have throttled them for an extended period now, namely very few homes available to buy, and very high home prices. The National Association of Realtors reported this week that 85% of the 221 metro areas they track saw increases in median home prices in the fourth quarter, so existing home prices will start the coming selling season in a firm stance. This will be the case even considering the typical seasonal softening for home prices that occurs during the late fall and early winter months.
Unless a seller is truly compelled by work, health, or family reasons to sell in these conditions, they likely won't. That's of course unless they are moving to new construction, downsizing, retiring, and relocating or other similar situations, but the percentage of homeowners in these circumstances is pretty small at any given time.
Even with greater availability, new home buyers may be able to wrangle themselves a deal, too, as builders have been using financing subsidies or price cuts to keep houses selling. The National Association of Home Builders reported that 31% of its members reported cutting home prices in January, with an average price reduction of 6%, and some 62% of NAHB members offered some form of sales incentive in January.
Overall, the housing market this spring isn't likely to be a whole lot better than what we saw in the spring of 2023. The existing home market will continue to be challenged by affordability and availability issues, while the new home market may have some space to improve a bit. Provided the Fed does start to trim rates come mid-spring, and more particularly if they signal that the forward path is likely to be one of routine (if small) cuts in rates, there's a chance that a modest spring improvement may find some space to run deeper into the summer.
After a thin slate, the economic data calendar gets a bit busier this week, but only the release of the January Consumer Price Index is due out before the next Freddie Mac survey comes along. Other important data points such as retail sales, regional manufacturing reports, the producer price index and more won't have any impact on rates until Friday at least. Until then, investors can continue to ponder the what’s and when’s of monetary policy. While our interpretation of the signals could of course be off, it looks as though the average offered rate for a conforming 30-year fixed-rate mortgage as reported by Freddie Mac will increase this week. We think something on the order of 12-16 basis points seems likely, lifting rates back up to where they were in about mid-December or so.