KEY DATA: Sales: -2.0%; Median Prices (Month): -6.3%; (Over-Year): +10.7%
IN A NUTSHELL: “The housing market remains strong, but how long it will remain that way is a real question.”
WHAT IT MEANS: The housing market has been a strong component of the economy, and the surge in starts in February is a sign that it is still in good shape. But not all the data are solid. The National Association of Realtors previously reported that existing home sales fell sharply in February and today we saw that new home purchases declined in February as well, though not as steeply. January’s sales pace was revised upward, so we really didn’t see much change. Sales in the Northeast rebounded sharply from recent declines, and demand improved in the Midwest, but sales fell in the South and West. On the pricing side, costs dropped significantly from the January level and the rate of increase over the year has clearly decelerated. Part of that may be due to the recovery in inventories, which are pretty much back to normal levels.
Rate Hikes, Mortgage Rates and the Implications for Housing: The housing market data are still solid, though that may not be the case in a few months. With Treasury rates soaring, mortgage rates are following and are now in the 4.50% range. Conforming rate mortgages are higher than jumbos. The conforming rate is 1.1 percentage points above where it was a year ago while the jumbo is up 0.8 percentage point. And mortgage rates are likely going to rise a lot more. On Monday, at a speech given to the National Association for Business Economics, Fed Chair Powell noted that the Fed’s “policy actions and those to come will help bring inflation down near 2 percent over the next 3 years.” The Fed is expecting inflation to remain elevated into and possibly through 2025. That is a clear signal to the markets to assume the higher levels of inflation are not going away anytime soon, and should be priced into mid- and longer-term rates. Mr. Powell also made it clear that, if necessary, the Fed will go above what economists call neutral, which for the Fed is about 2.50%. That is projected to occur by next year. So, both long-term and short-term rates have quite a way to go before they peak. Since home buyers have already been battered by soaring prices, the additional burden of sharply rising mortgage rates implies a slowdown in sales and a softening in prices is coming. If you are thinking of doing so, it just might be a good idea to sell your house soon. (I just did.)