The US housing market is displaying signs of rejuvenation as mortgage rates experience a significant drop, driven by the anticipation of interest rate cuts by the Federal Reserve. Reports from this week indicate a resurgence in housing activity, with a surge in housing starts to a six-month high, an uptick in sales of previously owned homes from a 13-year low, increased builder optimism, and a notable rise in Americans’ home-buying plans.
The housing recovery is attributed to a rapid decline in mortgage rates, witnessing a reduction of more than one percentage point in eight weeks — the most substantial drop over a comparable period since 2009. While the Fed recently signaled the conclusion of its rate-hiking cycle and hinted at upcoming cuts in 2024, investors had already been acquiring Treasuries, resulting in lowered yields and borrowing costs, particularly mortgage rates.
Charlie Dougherty, Senior Economist at Wells Fargo & Co., notes, “There are definitely green shoots on the housing front,” pointing to the early impacts of lower expected interest rates invigorating various aspects of the housing market.
Despite the overall activity pace remaining subdued compared to the pre-pandemic era, the recent data signals consumers re-entering the market, and builders intensifying construction efforts. The optimistic outlook is buoyed by expectations of the Fed easing policy in the coming year following a prolonged 16-month rate-hiking campaign.
Lawrence Yun, Chief Economist for the National Association of Realtors, anticipates that the decline in mortgage rates will encourage homeowners to list their properties in the coming months. While mortgage rates reached nearly 8% in October, a two-decade high, the majority of homeowners with rates below 4% find selling unappealing.
Chad Reeves, a Keller Williams brokerage location manager in Georgia, observes an increased home-selling pace, surpassing the same period last year and aligning with levels from December 2019 before the pandemic. Reeves attributes this rebound to the decline in mortgage rates, which currently stand at their lowest since June.
The trajectory of the housing market will hinge on consumer behavior. Encouragingly, consumer confidence has surged, with the Conference Board’s survey for December showing the most significant increase since early 2021, reflecting improved outlooks for jobs and inflation.
While homebuying may continue to be restrained without a significant increase in inventory, economists foresee the housing improvement influencing economic activity in the coming year. Goldman Sachs has revised its fourth-quarter economic growth estimates to 1.7% this week, reflecting the positive impact of the brighter borrowing cost outlook and limited supply.
For now, the optimistic landscape for borrowing costs and the limited supply positions homebuilders favorably. US homebuilder stocks have outperformed the S&P 500 index this month, indicating positive momentum in the sector.
Willy Nunn, President of homebuilding company Homes by WestBay, expects a robust spring, citing strong website traffic and increased demand. While not reaching the heights of the “pandemic mania,” the current pace is considered strong, with sales up 20% this year.
