Finance
Spring homebuying season brings slightly more optimism as listings continue to rise
The Home Purchase Sentiment Index is up by 2.1% in February. (iStock)
The spring buying season is heating up as more houses are on the market and homebuyers are eager to buy now that the winter frost has settled.
Fannie Mae’s Home Purchase Sentiment Index, which measures home-selling conditions, increased by 2.1 points in February. This is the third consecutive month the index increased.
This increase is largely due to the optimism slowly seeping through the real estate market as selling conditions improve slightly.
“The HPSI increased for the third straight month, continuing its slow but steady rise from the low-level plateau observed through much of 2023; and consumer sentiment toward housing now rests firmly above where it was this time last year,” Fannie Mae Senior Vice President Doug Duncan said.
While the percentage of prospective homebuyers that think it’s a good time to buy has increased to 19%, many buyers are still pessimistic.
This pessimism comes mainly from the state of home prices. About 42% of respondents surveyed in Fannie Mae’s report expect home prices to increase within the next 12 months, up from 37% a year ago.
Potential buyers also aren’t as positive about where mortgage rates stand. The number of survey respondents who think rates will go down in the next 12 months decreased from 36% to 35%.
“A decline in mortgage rates — and the resulting uptick in sentiment — would obviously bode well for the upcoming spring homebuying season,” Duncan said.
“Although affordability will likely remain a significant challenge for buyers, at least until there’s a meaningful addition to net supply.”
Interest rates remain lower than they did at the height of the pandemic, so if you’re ready to take advantage of these lower rates, now may be the time to consider a mortgage. A site like Credible can let you view multiple mortgage lenders and provide you with personalized rates within just minutes, all without impacting your credit.
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New construction homes remain popular
New construction became a haven for buyers during the pandemic when fewer listings of existing homes were on the market. New construction remains popular for many buyers. More than half of prospective buyers last year preferred to search for new-build homes, a Zillow study found.
Of the buyers who wanted new construction homes, 42% said they were only interested in new construction. This is an increase of six percentage points from 2022 and up 10 percentage points from 2021.
Home listings in general are up around the country. Listings for all houses increased 3.8% month over month in February, according to Redfin. This is the largest increase in six months.
“The housing market is nothing like it was two years ago during the pandemic homebuying frenzy, but it’s better than it was last year. It’s coming back,” David Palmer, a Redfin Premier real estate agent in Seattle, said.
If you think you’re ready to shop around for a home loan, consider using Credible to help you easily compare interest rates from multiple lenders in minutes.
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Mortgage rates are no longer expected to dip below 6% this year
Last month, mortgage rates were predicted to end the year around 5.9%, but 30-year fixed mortgage loans are now expected to hover around 6.4% at year’s end, Fannie Mae estimated in its most recent rates forecast.
The Federal Reserve isn’t cutting rates as aggressively due to better job numbers and higher inflation than expected.
“Hotter-than-expected inflation data and strong payroll numbers are likely to apply more upward pressure to mortgage rates this year than we’d previously forecast, as markets continue to evolve their expectations of future monetary policy,” Doug Duncan said.
“Still, while we don’t expect a dramatic surge in the supply of homes for sale, we do anticipate an increase in the level of market transactions relative to 2023 — even if mortgage rates remain elevated.”
To see what mortgage rates you qualify for based on your current credit score and salary, consider visiting Credible, where you can compare multiple mortgage lenders at once.
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Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.
WASHINGTON – The Federal Reserve on Wednesday lowered its key interest rate by a quarter percentage point, the third consecutive reduction and one that came with a cautionary tone about additional reductions in coming years.
In a move widely anticipated by markets, the Federal Open Market Committee cut its overnight borrowing rate to a target range of 4.25%-4.5%, back to the level where it was in December 2022 when rates were on the move higher.
Though there was little intrigue over the decision itself, the main question had been over what the Fed would signal about its future intentions as inflation holds steadily above target and economic growth is fairly solid, conditions that don’t normally coincide with policy easing.
In delivering the 25 basis point cut, the Fed indicated that it probably would only lower twice more in 2025, according to the closely watched “dot plot” matrix of individual members’ future rate expectations. The two cuts indicated slice in half the committee’s intentions when the plot was last updated in September.
Assuming quarter-point increments, officials indicated two more cuts in 2026 and another in 2027. Over the longer term, the committee sees the “neutral” funds rate at 3%, 0.1 percentage point higher than the September update as the level has drifted gradually higher this year.
“With today’s action, we have lowered our policy rate by a full percentage point from its peak, and our policy stance is now significantly less restrictive,” Chair Jerome Powell said at his post-meeting news conference. “We can therefore be more cautious as we consider further adjustments to our policy rate.”
“Today was a closer call but we decided it was the right call,” he added.
Stocks sold off following the Fed announcement while Treasury yields jumped. Futures pricing pared back the outlook for cuts in 2025 to one quarter point reduction, according to the CME Group’s FedWatch measure.
“We moved pretty quickly to get to here, and I think going forward obviously we’re moving slower,” Powell said.
For the second consecutive meeting, one FOMC member dissented: Cleveland Fed President Beth Hammack wanted the Fed to maintain the previous rate. Governor Michelle Bowman voted no in November, the first time a governor voted against a rate decision since 2005.
The fed funds rate sets what banks charge each other for overnight lending but also influences a variety of consumer debt such as auto loans, credit cards and mortgages.
The post-meeting statement changed little except for a tweak regarding the “extent and timing” of further rate changes, a slight language change from the November meeting.
Change in economic outlook
The cut came even though the committee jacked up its projection for full-year gross domestic product growth to 2.5%, half a percentage point higher than September. However, in the ensuing years the officials expect GDP to slow down to its long-term projection of 1.8%.
Other changes to the Summary of Economic Projections saw the committee lower its expected unemployment rate this year to 4.2% while headline and core inflation according to the Fed’s preferred gauge also were pushed higher to respective estimates of 2.4% and 2.8%, slightly higher than the September estimate and above the Fed’s 2% goal.
The committee’s decision comes with inflation not only holding above the central bank’s target but also while the economy is projected by the Atlanta Fed to grow at a 3.2% rate in the fourth quarter and the unemployment rate has hovered around 4%.
Though those conditions would be most consistent with the Fed hiking or holding rates in place, officials are wary of keeping rates too high and risking an unnecessary slowdown in the economy. Despite macro data to the contrary, a Fed report earlier this month noted that economic growth had only risen “slightly” in recent weeks, with signs of inflation waning and hiring slowing.
Moreover, the Fed will have to deal with the impact of fiscal policy under President-elect Donald Trump, who has indicated plans for tariffs, tax cuts and mass deportations that all could be inflationary and complicate the central bank’s job.
“We need to take our time, not rush and make a very careful assessment, but only when we’ve actually seen what the policies are and how they’ve been implemented,” Powell said of the Trump plans. “We’re just not at that stage.”
Normalizing policy
Powell has indicated that the rate cuts are an effort to recalibrate policy as it does not need to be as restrictive under the current conditions.
“We think the economy is in really good place. We think policy is in a really good place,” he said Wednesday.
With Wednesday’s move, the Fed will have cut benchmark rates by a full percentage point since September, a month during which it took the unusual step of lowering by a half point. The Fed generally likes to move up or down in smaller quarter-point increments as its weighs the impact of its actions.
Despite the aggressive moves lower, markets have taken the opposite tack.
Mortgage rates and Treasury yields both have risen sharply during the period, possibly indicating that markets do not believe the Fed will be able to cut much more. The policy-sensitive 2-year Treasury yield jumped to 4.3%, putting it above the range of the Fed’s rate.
In related action, the Fed adjusted the rate it pays on its overnight repo facility to the bottom end of the fed funds rate. The so-called ON RPP rate is used as a floor for the funds rate, which had been drifting toward the lower end of the target range.
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