Home Buying Season Is Here. What to Expect This Year.

The first quarter of the year should mark the start of the housing market’s rebound, according to forecasters. Sales of previously owned homes fell to a nearly 30-year low in 2023, but they are expected to grow this year, though estimates differ on the size of the expansion. 

“There’s a lot of buyers out there who are intending to shop this spring,” says Mike Fratantoni, the Mortgage Bankers Association’s chief economist.

But the road to a vibrant season could be bumpy. Strong economic data, paired with a Federal Reserve that delays interest rate cuts, could send the 10-year Treasury yield—an important benchmark for mortgage rates that could make them volatile—higher. That could temporarily weaken housing demand this spring.

There are early signs of brewing demand. While the Mortgage Bankers index tracking loan applications for home purchases remains lower than a year ago, some lenders have reported an increase in those seeking prequalifications—a sign that buyers are gearing up, Fratantoni says. “Whether that then results in transactions or not, we don’t know, but it is a more positive time than we’ve seen in a bit.”

There are other signs that buyers have housing on their minds. Touring activity has ramped up more quickly than it did last year, according to
Redfin,
using data from home tour company ShowingTime.

Consumer sentiment gauged by
Fannie Mae
improved in January as consumers felt more secure in their jobs and the likelihood of mortgage rates falling.

“For the first time in our National Housing Survey’s history, a greater share of consumers believe mortgage rates will decrease over the next year, rather than increase,” Doug Duncan, Fannie Mae’s chief economist, said with the release of its January data earlier this month. The survey dates back to 2010.

Consumers and economists agree that mortgage rates will head lower this year as the Fed cuts rates. The central bank doesn’t control the trajectory of mortgage rates itself; rather, the 10-year Treasury yield, which moves with market expectations for the economy, serves as a benchmark for mortgage rates. 

Mortgage rates often adjust before the Fed raises or cuts its target fund rate, and can swing based on economic data or commentary. 

Prospective buyers experienced such swings earlier this month, after Federal Reserve chair Jerome Powell said he didn’t expect that the central bank would cut rates this March, and a slate of economic data came in stronger than expected, raising alarms about the course of inflation. Rates measured by Mortgage News Daily climbed to about 7% in recent days, up from 6.75% on the final day in January. 

Along with keeping an eye on the 10-year Treasury yield, it’s worth watching the economic data that can drive it. “​​We’re set up reasonably well for this spring buying season—but this potential reversal in the inflation path is the biggest risk right now,” MBA’s Fratantoni says.

Employment data revisions and still-strong wage growth are signs that it could be difficult to keep inflation around the central bank’s 2% target, says Orphe Divounguy, senior macroeconomist at Zillow Home Loans. “Market participants will be looking to next week’s consumer price index report for signs that inflation is still headed in the right direction.” 

Economists expect that consumer prices in January rose 2.9% from one year prior, according to FactSet consensus estimates. A surprise to the upside could drive Treasury yields—and mortgage rates—higher.

The recent gain in daily rates coincided with a drop off in home purchase contract signings, according to Redfin. Pending sales in the four weeks ended Feb. 4 dropped 7.8% from the year prior, the greatest decline since October 2023.

“Demand at the earliest stages isn’t up as much as we would expect at this time of year,” Chen Zhao, Redfin’s economic research lead, said in a Thursday statement. “That’s because mortgage rates are climbing again and winter weather has been harsher than usual in much of the country, keeping some house hunters at home.”

Mortgage rates will again be key to home sales this year. Forecasters from the Mortgage Bankers Association, Fannie Mae, and the National Association of Realtors all expect rates to end the year around 6%, down from a recent 6.6% and as much as 7.8% late last year. 

Write to Shaina Mishkin at [email protected]