If you’re the glass half-full type, you might say contract activity in America’s tortured housing market recovered in February.
I’d gently suggest that’d be misguidedly euphemistic. The 2% rebound in pending home sales reported on Thursday by the NAR counted as lackluster even if it managed to beat consensus.
Recall that the marquee measure of contract signings hit a new record low the prior month after back-to-back declines pushed the gauge below last summer’s hopeless nadir.
The figure gives you the unfortunate context. Even the NAR couldn’t come up with an overtly cheerful adjective, writing on Thursday that sales “augmented” last month.
The readout caps a mixed round of housing data which included a very poor showing for builder sentiment, a snapback in new construction following bad weather in January, a surprise increase in existing home sales, an uninspired read on new home purchases and more price increases.
“Despite the modest monthly increase, contract signings remain well below normal historical levels,” NAR Chief Economist Lawrence Yun said Thursday, of the pending home sales data, adding that “a meaningful decline in mortgage rates would help both demand and supply — demand by boosting affordability, and supply by lessening the power of the mortgage rate lock-in effect.”
I use the chart below all the time, but it’s always worth revisiting. It shows the breakdown of America’s mortgage stock by rate bucket from Q4 of 2020 to Q4 of 2023.
The picture probably looks a little different today, but the overarching point is that as a share of the total, mortgages with a six-handle and up are far and away the exception, which is to say the overwhelming majority of homeowners have a mortgage rate below the current 30-year fixed, which in turn disincentives resale inventory.
That’s what Yun means when he says lower rates would “lessen the power of the mortgage rate lock-in effect.”
Alas, rates aren’t likely to fall precipitously absent a meaningful recession, and that’d create its own economic problems for affordability-constrained, aspiring homeowners.
Along with Thursday’s release, the NAR published forecasts for mortgage rates in 2025 and 2026. Borrowing costs will average 6.4% this year and 6.1% next, Yun said. Prices, the NAR went on, will increase by 3% and 4% in 2025 and 2026, respectively.
Meanwhile, Redfin’s Dana Anderson noted that the typical homebuyer’s monthly payment just hit a new all-time high above $2,800. For reference, that figure was around $1,600 in January of 2022.
“Housing costs are soaring for two reasons,” Anderson said. “One, sale prices keep rising; two, the average weekly mortgage rate is more than double pandemic-era lows.”
Do note (and Anderson did): Those payments would be even higher were it not for the ~50bps decline in 10-year Treasury yields since mid-January.
