NEW YORK – Even before the United States Federal Reserve has begun cutting interest rates, the mere anticipation of such moves is already thawing the US housing market.
A series of reports this week showed activity coming back to life: Housing starts surged to a six-month high, sales of previously owned homes picked up from a 13-year low and builder optimism was boosted by increased interest from prospective buyers.
Housing starts is an economic indicator that reflects the number of privately owned new houses on which construction has been started in a given period.
Meanwhile, Americans’ home-buying plans rose in December by the most in more than a year.
The bounce-back comes as mortgage rates have declined by more than 1 percentage point in eight weeks, the biggest drop over a comparable period since 2009.
While the Fed last week signalled it has finished its run of rate hikes and is preparing to cut in 2024, investors had already been scooping up Treasuries, driving down yields along with borrowing costs – such as mortgage rates – that tend to reflect fluctuations in the bond market.
“There are definitely green shoots on the housing front,” said Wells Fargo & Co senior economist Charlie Dougherty. “You’re already starting to see the effects of expected lower interest rates boosting a lot of different facets of the housing market.”
Even though the overall pace of activity remains subdued compared with the pre-pandemic period, the recent data highlights that consumers are starting to dip their toes back into the market and builders are revving up construction.
Perhaps the biggest case for optimism is the expectation from economists and markets that the Fed will ease policy in 2024 after an aggressive 16-months-long hiking campaign.
The decline in mortgage rates should start spurring some home owners to list their homes in the coming months, according to National Association of Realtors chief economist Lawrence Yun, as supply remains an issue.
Mortgage rates approached 8 per cent in October, the highest in more than two decades.
But nearly two-thirds of owners have a mortgage rate below 4 per cent, making it unappealing to sell their current home.
Mr Chad Reeves, who runs a Keller Williams brokerage location in Gwinnett County, Georgia, says his office is on pace to sell 200 homes in December.
That is higher than the same month in 2022, and around the same level as December 2019 before the pandemic hit.
He saw the impact from the decline in mortgage rates first-hand.
The average rate for a 30-year fixed mortgage slid for the fifth straight week to 6.83 per cent in the week ended Dec 15, the lowest since June, and it is expected to fall further as the Fed cuts its overnight lending rate.
“The minute that rate came down into the sixes, we had numerous people,” Mr Reeves said. “The buyer market filled back up.”
