Why I Think Housing Demand Is Softening a Little

As expected, mortgage rates continued their persistent march higher last week. According to Freddie Mac’s weekly survey, rates have moved higher for seven consecutive weeks. No, none of us likes higher rates but remember there is always a silver lining and in this case, we are starting to see some volatility in housing demand which means interested – and persistent – buyers may find competition for homes beginning to soften (more on this later).

There are also indications that inflation expectations have dropped, which may alleviate some pressure on bond yields and thus mortgage rates in the longer term. As always, time will tell.

Regardless, as we move into spring, the housing market is still looking strong for both buyers and investors. We get some good looks this week at the health of the housing market with the latest home price appreciation numbers and the numbers for New Home Sales, and Pending Home Sales, a leading indicator in the sector.

As for home price appreciation, the Case Shiller price data showed strong rates of appreciation through year end and into January. But February, when mortgage rates began to accelerate, is expected to show at least some monthly slowing, from January’s 1.8 percent to a gain of 1.5 percent in prices. The year-over-year rate is expected to remain brisk at 19.2 percent which would compare with January’s 19.1 percent.

New home sales have been holding up despite rising mortgage rates though sales did slow in February to a 772,000 annual rate from January’s 788,000. March’s expectations are no change at 772,000.

As I mentioned above, we’re starting to see demand soften. I’ll especially be watching the report on pending home sales – a leading indicator for home sales – which have posted four straight sharp declines and are not expected to recover, at a consensus March decline of 1.1 percent.

We’ll also get a look at first-quarter GDP (gross domestic product) which is expected to slow sharply to 1.1 percent annualized growth versus fourth-quarter growth of 6.9 percent.

And lastly, but most importantly, the Fed’s favorite inflation indicator comes out on Friday. The PCE Index is predicted to show inflation rates remaining persistent with monthly gains of 0.9 percent overall but only 0.3 percent for the core (verses 0.6 and 0.4 percent respective gains in February) for annual rates of 6.8 and 5.3 percent (versus February’s 6.4 and 5.4 percent).

I’ll be keeping an eye on it all for you and if you’d like me to monitor rates for you, reach out and let’s talk about your specific situation and what your home purchase or refinance plans are.