Spring brings mix of gray skies, green shoots for real estate
Much of the latest economic and market data falls into the "good news, bad news" category, but improved home sales and stable mortgage rates offer hope.
Key points:
- February existing home sales rebounded from a slow January but fell short compared to a year ago.
- While mortgage rates remain fairly steady at 6.67%, other economic concerns are pushing consumer confidence down.
- Rising inventory is giving buyers more choices and driving the shift toward a buyer’s market, which could help revive sales.
The first day of spring is bringing a cloudy mix of positive economic signals and not-so-good news, making it unclear what the real estate industry should expect this homebuying season.
Home sales picked up but still slow
February's existing home sales numbers are a prime example of the mixed-bag nature of the market: On the plus side, the 4.2% increase from January — which translates to an annualized rate of 4.26 million existing home sales — was stronger than expected.
But that still adds up to 1.2% fewer sales than last February, when the annualized rate was 4.31 million, according to the National Association of Realtors. And even though existing home sales were stronger at this time last year, sales in 2024 ultimately fell short of 2023 numbers, so the market has some catching up to do.
Mortgage rates relatively stable despite small uptick
With the Federal Reserve opting to keep interest rates unchanged for now, mortgage rates are expected to remain elevated but fairly stable. The 30-year fixed-rate mortgage averaged 6.67% this week, according to Freddie Mac's survey. That's up a tick from last week's 6.65% but lower than a year ago, when rates averaged 6.87%.
While rates have now inched up for two consecutive weeks, the increases have been small — another example of economic news that isn't great, but could be worse.
Declining consumer optimism is taking a toll, but the market may be shifting
Despite some positive signs for the market, perception is everything, and consumers appear to be responding negatively to economic uncertainty. Eroding consumer confidence could mean a slow start to the spring housing market, said Lisa Sturtevant, chief economist at Bright MLS. In the mid-Atlantic region that Bright MLS serves, pending sales are down significantly, a sign that fewer deals will close in March and April compared to a year ago.
Along with economic uncertainty, affordability issues remain a strong headwind this spring. Home prices continue to rise, with NAR reporting a median existing-home sales price of $398,400 in February, up 3.8% compared to a year ago, with all four U.S. regions seeing price increases.
On a positive note for buyers, that pace reflects a modest deceleration from the 4.7% average in 2024, said Realtor.com Chief Economist Danielle Hale.
Still, the typical U.S. homebuyer's monthly housing payment is $2,793, just a few dollars shy of the all-time high, according to Redfin's weekly market report.
"Some prospective buyers and sellers are still waiting for rates to drop and others are holding off because they're worried about the economy and losing their job. But others are jumping back in because it's clear the market isn't going back to where it was in 2020," said Heather Mahmood-Corley, a Redfin Premier agent in Phoenix.
And buyers could finally be making some headway, Mahmood-Corley noted: "Overall, it feels more like a buyer's market than a seller's market."
More supply may help spark sales
Rising inventory is a key factor in the shift toward a buyer's market, even if it's not yet pushing prices down. NAR reported that total inventory at the end of February was 1.24 million units, up 17% from a year ago. Unsold inventory supply was at 3.5 months, up from 3 months in February 2024.
"Despite the context of an expensive borrowing environment and stretched affordability for many shoppers, today's pick-up [in existing-home sales] shows that a fair number of buyers and sellers are still able to find the middle ground that a transaction requires," Hale said.
Mortgage applications — while mixed — also point to increasing buyer interest. Overall applications were down 6.2% over the previous week, largely driven by a slowdown in refinancing, according to the Mortgage Bankers Association. But the unadjusted purchase index was up 1% and is 6% higher than the same week a year ago.
The rise in purchase applications suggests that "growing inventories of homes on the market and steadier mortgage rates are supporting homebuying activity thus far this spring," said Mike Fratantoni, MBA's chief economist.