The spring season has traditionally been the best time to sell a home due to favorable weather and timing, but the Federal Reserve’s current policies are affecting potential homebuyers. Initially, rate cuts were expected to lower mortgage rates, but inflation has prevented these cuts. With inflation measures rising, the Fed may have to maintain high interest rates or potentially increase them, causing the spring homebuying season to slow down and potentially affect the remainder of the year.
Buyers are hesitating due to the increase in mortgage rates, unsure if they should wait for rates to go down or consider overall affordability. Homeowners with low-rate mortgages from the pandemic era are hesitant to sell and pay higher rates, impacting the housing inventory. While a decrease in home prices might increase purchases, high mortgage rates and rising home prices are currently causing a dilemma for potential buyers.
Existing homeowners are more likely to wait due to current rates, while first-time homebuyers continue to enter the market even in a rising rate environment. New home construction in states like Texas and Florida is providing some relief on prices, attracting more buyers to these markets. The spring homebuying season is crucial as it largely determines the overall performance of the housing market for the year, with a significant portion of sales occurring between March and June historically.
The Fed’s reluctance to cut rates will likely keep mortgage rates elevated, limiting housing inventory as homeowners hold on to low rates. Strong demand this spring, as evidenced by increased mortgage applications, is expected to drive home prices up. Economists predict home prices to grow moderately this year, with a potential secondary boost in sales if mortgage rates fall later in the year. However, investors are not optimistic about a rate cut until November, further complicating the housing market outlook for the rest of the year.
