Weekend Talking Points - 'Strong Start'

After several weeks of steadily improving mortgage rates, things hit a bit of a wall: tariff fears & realities, rising inflation expectations, hawkish Fed commentary, etc. Nonetheless, average 30-year mortgage rates remain well below 7%. This, together with higher inventory levels nationwide, is breathing some life back into the moribund housing market.

February existing home sales surprised. The NAR’s pending home sales index had declined in each of the last two months (-4% in Dec 2024 & -5% in Jan 2025), so I naturally expected a chunky drop in existing home sales in February. Instead, we got a 4.2% MoM increase to 4,260,000 units SAAR (seasonally-adjusted, annualized rate). [NAR]

TP: I’ll be honest, this number doesn’t make sense to me UNLESS the January existing home sales figure (-4.7% MoM) was more affected by weather than any of us realized.

NAR raises its housing market forecasts. The NAR is getting a bit more bullish, now forecasting 6% growth in existing home sales in 2025, followed by 11% growth in 2026. Price growth, however, is expected to moderate to just 3–4% per year. [NAR]

TP: Our parent company, MBS Highway, is forecasting 10% existing home sales growth in 2025, with 30-year mortgage rates moving into the low 6% range.

2025 off to a strong start for home prices
Case-Shiller national index +0.6% MoM. The seasonally-adjusted national home price index rose 0.6% MoM in January 2025, and YoY growth accelerated to +4.1%. Eight of the 20 big city indexes also saw an acceleration in price growth. Only one city saw a decline (Tampa, again) while Chicago and Detroit both saw exceptional growth of 1% MoM. [S&P Global]

TP: It’s important to remember that many markets in the Midwest and Northeast are still supply-constrained. This, combined with a general recovery in prices in certain West region markets (Phoenix +0.7% MoM, Los Angeles and Las Vegas both +0.6%), is more than enough to keep the national index rising. [More on this later]

FHFA national index +0.2% MoM. Similar approach to Case-Shiller, but slightly different (more mass-market) dataset. On FHFA’s numbers, national prices were up 4.8% YoY. The strongest regions? The Midwest and Northeast (~7% YoY). The weakest regions? The Mountain and South Atlantic (-1% YoY). [FHFA]

25% tariffs announced on imported cars & trucks. Why is this important? Because about half of the cars bought in the US are imported. While domestic producers (like Ford) will get some tariff relief based on the domestic (US-made) content of the vehicles imported, this was still a big shock to an industry that represents ~5% of GDP.

TP: Carmakers have estimated that this could add $6,000 to the cost of an imported car. But used car prices could also rise if some demand shifts from new to used cars. By the way, new (5.5%) and used (3%) car prices make up 8.8% of “core” CPI.

4Q 2024 GDP revised up slightly. The final reading for 4Q 2024 GDP was revised from +2.3% YoY → +2.4% YoY. Forecasts for 1Q 2025 GDP currently range from -2% to +2%. [BEA]

Seasonal rise in rents, but still down YoY. Apartment List’s March rent report showed rental rates were up +0.6% MoM — which sounds like a lot but is actually totally normal for this time of year. On a YoY basis, rents were down 0.5%. That makes 22 straight months of negative annual comparisons. The vacancy rate remained at a series-high 6.9%. [Apartment List]

March pending home sales up slightly. NAR’s Pending Home Sales Index (PHSI) climbed 2% month-over-month to 72.0 in March. But this increase was almost entirely driven by the South region, which saw a 6.2% MoM rebound in March after a 9.2% MoM drop in February. The other three regions all saw MoM declines. Keep in mind, average 30-year mortgage rates didn’t fall back below 7% until late February. [NAR]

TP: Good news on the monthly increase, but let’s put that index level in perspective. A PHSI of 100 is consistent with the sales pace in 2001. In other words, we are currently selling homes at a pace that is 28% BELOW what it was 24 years ago!

On the Case (Shiller) in January 2025

The Case-Shiller index is the gold standard for measuring home price growth because it uses the repeat sales method (looking at ‘pairs’ of transactions for the same home) to more accurately gauge true appreciation. However, this accuracy comes at a cost: a nearly two-month time lag.

Overall, the January 2025 results were very strong. The SA (seasonally-adjusted) national index rose 0.6% month-over-month, and the 10-city and 20-city indexes both rose 0.5% MoM. That’s an extraordinary start to 2025. The people who are currently forecasting 0–3% price growth for the whole year must already be considering revisions.

As we do each month, we looked at the 20 big city indexes in detail. Here’s what we found:

• The biggest MoM increases came from Chicago (+1.04%) and Detroit (0.79%), while the highest YoY growth came from New York City (+7.8%) and Chicago (+7.5%).
• Tampa was the only city to see a MoM decline in its seasonally-adjusted index. That’s actually the 4th-straight month of decreases for Tampa. Still, with the Tampa index having risen 69% between end-2019 and end-2024, giving back 1–2% is hardly a disaster!
• With 0.36% MoM growth in January 2025, the Portland index is now just shy (-0.2%) of setting a new high, 2.5 years after it last peaked in mid-2022. It should hit a new record next month, which would leave only 5 cities that haven’t yet fully recovered from the 2H 2022 price falls: San Francisco (-5.2% from peak), Denver (-0.8%), Seattle (-0.6%), Phoenix (-0.5%) and Dallas (-0.4%).

NAHB’s “Priced-Out” Pyramid

The National Association of Homebuilders’ updated “priced-out pyramid” illustrates the struggle first-time buyers (in particular) are facing with high home prices and mortgage rates. According to NAHB data, 60% of the 134.3 million US households can’t afford a $300K home. By the way, the median-priced new home costs $460,000!

Here’s how to read the NAHB chart below. There are 23.53 million households that could afford a home priced between $200–300K. And 52.87 million households that could afford a home priced less than $200K (good luck finding that!). Add those together and you get 76.4 million people (57% of all households) that can’t afford a home priced above $300K.

For comparison, here’s the median price for existing homes sold in February 2025:

• Midwest: $295K
• South: $359K
• Northeast: $464K
• West: $615K

TP: This chart is scary, no doubt. But it assumes that households pay for everything out of their monthly income, that they have no existing home equity, and that they don’t get any down payment help from relatives or DPA programs etc.

Mortgage Market

After several weeks of steadily improving mortgage rates, things hit a bit of a wall: tariff fears/realities, rising inflation expectations, hawkish Fedspeak, etc. Nonetheless, average 30-year mortgage rates remain well below 7%. This, together with higher inventory levels nationwide, is breathing some new life back into the housing market.

Here’s what the Fed Funds Rate futures market is currently pricing in for rate cuts. Note that the current Fed Funds Rate policy range is 4.25–4.50%.

• May 7 FOMC Meeting: 88% probability that the policy rate will remain at 4.25–4.50% (up from 81% last week). 12% probability of a 25 bps cut (25 bps = 0.25% = a quarter percentage point) to 4.00–4.25%.
• June 18 FOMC Meeting: 34% probability that the policy rate will remain at 4.25–4.50% (same as last week). 59% probability that the policy rate will be 25 bps below current (which implies one rate cut on either May 7 or June 18). 7% probability that rates will be 50 bps below current.

They Said It

“The rising [rental] vacancy rate in recent years is largely attributable to an influx of new multifamily inventory hitting the market. 2024 saw over 600 thousand new multifamily units hit the market, representing a 65 percent increase compared to 2022 and the most new supply in a single year since 1986. 2025 is expected to see completions fall back from the 2024 peak, but there are still 750 thousand multifamily units under construction, meaning that even as the supply boom begins to lose steam, it still has runway in the first half of 2025.” — Apartment List

“Despite the modest monthly increase, contract signings remain well below historical levels. A meaningful decline in mortgage rates would help both demand and supply — demand by boosting affordability, and supply by lessening the power of the mortgage rate lock-in effect.” — Lawrence Yun, NAR’s Chief Economist

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