Housing Market Predictions for the Year Change

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A strong jobs market and the Federal Reserve’s signal that it is likely to hold rates but cut at some point during the year sets up a potentially positive trajectory for the housing market over the coming months.

Last week, the Federal Reserve held rates for the fourth time in a row at 5.25 to 5.5 percent. The environment of elevated rates instituted to fight soaring inflation has pushed up borrowing costs across the economy, including for homes.

Inflation has fallen but not quite to the Fed’s target of 2 percent. The personal expenditure index (PCE) inflation metric, what central bank policymakers look at to track how prices are unfolding, was unchanged from November but jumped 2.6 percent in December on a year-over-year basis.

Fed Chair Jerome Powell told reporters last week that the central bank was seeing progress with inflation but was not yet confident enough about hitting the preferred target to cut rates immediately.

A “for sale” sign hangs in front of a home on June 21, 2022, in Miami, Florida. A strong jobs market and the Federal Reserve’s signal that it is likely to hold rates but cut…


Joe Raedle/Getty Images

The decision to hold rates will impact mortgage rates, experts said, even as mortgage rates have been declining at a faster rate than expected.

Danielle Hale, chief economist at Realtor.com, told Newsweek that they had expected interest rates on home loans to hit 6.5 percent by the end of the year. But that has happened a lot quicker than anticipated.

“Rates have come down a lot faster than we expected, but I I think they’re going to stabilize here until the Fed begins cutting rates and gives an indication of how quickly they might bring the Fed funds rate back down to a neutral level,” Hale said.

Meanwhile, Friday’s blockbuster jobs report that showed employers hired more than 350,000 workers in January and wages had gone up held potential upside for the housing market, too.

“Job growth puts money in workers’ pockets that they can use for doing things like buying houses,” Hale said.”People with jobs are the ones who are thinking about buying houses.”

The key to falling rates could be how inflation shakes out over the coming months. While PCE was has been showing progress, the Consumer Price Index (CPI) inflation rate ticked up slightly in December to 3.4 percent compared to 3.1 percent in November. This explains why the Fed is still holding rates, which in turn keeps mortgage rates higher, as well.

“The key to further progress toward lower mortgage rates, which is the key to making sure that the Fed has the confidence that it needs to actually cut rates, is going to be ongoing improvement in the inflation data,” Hale said.

“The Fed is is going to wait to make sure that we’re not just projecting that we’re going to get back to the goal, but we’re actually seeing the data evolve in a way that makes it reasonable to expect that we’re going to get back to the 2 percent inflation goal.”