This spring is supposed to be when the housing market finally begins to thaw out of its three-year-long deep freeze. Ahead of the typical peak homebuying season, the indicators initially looked positive. For-sale inventory is rising, and affordability is improving in many parts of the country thanks to lower mortgage rates, solid wage growth, and slowing home price appreciation.
“All those things together seem to support strong demand fundamentals, meaning people would want to get in the market,” said one chief economist.
But recent events have clouded that outlook. A major geopolitical conflict has stoked fresh fears about inflation and pushed mortgage rates back above 6%. And the latest employment report showed dramatic weakening in the labor market, with significant job losses in February.
Economists remain cautiously optimistic about the spring, though many admit the outlook is now more uncertain than it was just a few weeks ago.
Even before these recent shocks, early indicators of housing market activity have been mixed. Home sales plunged in January, and contract signings were muted, though severe winter weather may have played a role. February looked slightly better, with data from one real estate platform showing home sales up from a year earlier, likely helped by improving affordability.
“It’s low and steady housing appreciation with flows of buyers and sellers,” a senior economist noted. “The balance of power between buyers and sellers remains somewhat right down the middle.”
Executives at major home improvement retailers have voiced caution about the state of the market, citing customer concerns. “Our customers also tell us they have concerns over general economic uncertainty, including inflation, growing job concerns, and higher financing costs,” one executive said on an earnings call. “We anticipate these pressures will persist, as we have not yet seen a catalyst for an inflection in housing activity.”
Despite the headwinds, real estate agents gearing up for spring are staying positive, especially after last year proved disappointing in much of the country. Last spring, mortgage rates nearing 7% and uncertainty over economic policies scared off many buyers and sellers, leading to a spike in deal cancellations.
Agents in some regions report that homes are still appreciating healthily and moving quickly. They expect many house hunters who sat out during an unusually cold and snowy winter will be eager to enter the market soon. “There’s some more pent-up demand and interest from buyers,” one agent said.
In other areas, agents are busy helping sellers prepare to list and are fielding inquiries from buyers relocating for jobs or family. What’s been missing, however, are the more casual movers seeking more space or a change of neighborhood. Economic uncertainty and high prices are giving those buyers pause.
While affordability has improved for many, the gains have been modest. One estimate suggests a median-income household has about $30,000 more in buying power than a year ago. Another calculation shows the average household can afford a home priced slightly above the national median.
As one economist summarized, “We’re not talking about 50% improvements. It’s very, very modest gains over last year’s case.”
