In a situation that's not exactly the best of both worlds, economic growth turned lower in the first quarter of 2024 while inflation turned higher. A period of soft growth would likely ultimately exert the kind of downward pressure on prices that the Fed is hoping to see, but only if it is also accompanied by the enough softening in the labor markets to ease wage pressures. Of course, none of this is in place now and early readings on GDP growth are known to be revised, sometimes considerably.
There's little chance that the housing market will be strong this spring, what with little to buy, high home prices and now five-month highs for mortgage rates. Still, that's not to say there will be no activity, and indications are that there was at least some to be seen in March. Sales of new homes last month came in at an annualized 693,000, up 8.8% from a February figure that was revised downward by 25,000 units. This change makes March's gain in sales somewhat less impressive and opens the prospect that a chunk of March's reported sales may be revised away next month. Regardless, an increase is an increase, and it appears as though at least some potential home buyers are migrating over to the new construction markets to escape the frustrations of the existing home market. Even with March's faster pace for sales, there remain plenty of new homes available to buy, as the supply of new homes is still a fat 8.2 months available. As well, and even though the price of a new home sold in March was about $25,000 higher than in February, the $430,700 price tag was also still 1.8% below the same month a year ago, and so a relative bargain compared to the 4.8% increase for existing home prices over the same period.
In addition to an upturn in sales of new homes, the Pending Home Sales Index for March from the National Association of Realtors found a 3.4% increase in the number of purchase contracts signed in March. This gain lifted this indicator of future sales to just slightly above where it was last year during the same month. Should all these signed contracts make it to the closing table, they would help lift April and May sales somewhat, putting them back on par with where they were last spring, give or take a little. Of course, mortgage rates were also somewhat lower in March than in April (and likely for at least early May, too), so the chances of a strong follow-through in those months isn't all that likely to occur.
With mortgage rates higher over the last few weeks, it's unsurprising that requests for mortgage credit have retreated, even if the spring homebuying season is coming up to speed. In the week ending April 19, the Mortgage Bankers Association reported that applications for mortgages declined by 2.9%, pulled backward by a 1% decline in requests for funds to purchase homes, but also by a 5.6% slump in those to refinance existing home loans. With firmer rates in place this week, activity detailed in the next report will likely retreat somewhat more.
The Fed meets again this week to consider all these items plus plenty of other ones, with a two-day meeting concluding on Wednesday. No change to policy is expected. However, we'd be surprised if the language in the statement or in Chair Powell's prepared remarks for his press conference don't overtly imply that the Fed was hoping for better news on inflation, and that until it comes, the chances of rate cuts are closer to nil than not.
As far as mortgage rates go, we keep hoping they'll go lower, but they have insisted on going higher lately. That said, the as-expected PCE report on Friday seems to have at least stopped the increase for now, so that's something, and leaves open the possibility that rates could plateau next week. Of course, what the data shows and what the Fed has to say will dictate whether that comes to pass, but as of now, we think that the average offered rate for a conforming 30-year fixed-rate mortgage may just manage to hold nearly steady when Freddie Mac's next update comes on Thursday.