Total existing-home sales[1] – completed transactions that include single-family homes, townhomes, condominiums and co-ops – progressed 4.2% from January to a seasonally adjusted annual rate of 4.26 million in February. Year-over-year, sales slid 1.2% (down from 4.31 million in February 2024).
Will home sales pick up at all this year? They should pick up if the Fed Governors get off their duffs. But everyone seems to be waiting to see what President Trump’s grand plan may be.
Housing should be aided by moderating consumer inflation but fixed mortgage rates are still hovering close to 7 percent. Housing construction has picked up to fill the supply void. Homebuilders seem to believe the housing market will improve.
Overall housing starts increased 11.2% in February to a seasonally adjusted annual rate of 1.50 million units, a good number, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.
“Despite elevated interest rates and policy uncertainty, ongoing lean levels of single-family existing home inventory helped to boost single-family production in February,” said Jing Fu, NAHB senior director, forecasting and analysis. “NAHB forecasts that single-family starts will remain effectively flat in 2025 as prospects of a better regulatory business climate are offset by uncertainty on the tariff front.”
NAR Chief Economist Lawrence Yun has said the same. “Mortgage rates have not changed much, but more inventory and choices are releasing pent-up housing demand.”
There are simply not enough homes for sale to attract more buyers. The unsold inventory of existing homes sits at a 3.5-month supply at the current sales pace, identical to January and up from 3.0 months in February 2024. An inventory of 5 to 6 months is more usual, but only when mortgage rates are lower.
Homebuilders and sellers can buy down the interest rate. Lowering the 30-year fixed rate ¼ percent adds just 1 point to the price, and buyers can also choose a lower 5-year fixed adjustable-rate loan and then refinance when 30-year fixed mortgage rates ultimately decline to a more normal level, which they eventually will.
We shouldn’t forget that the Fed is still in a tightening cycle, having dropped its Fed Funds overnight rate just one percent from its high of 5.33 percent to 4.33 percent. It was last this high in 2007 at the start of the Great Recession. Its timing was wrong then (i.e., led to Lehman Bros. bankruptcy, which precipitated GR), and the timing is wrong today.
This is because inflation is already down to 3 percent, so it should be easing further to boost further economic growth, which has slowed and is in danger of going negative in Q1 2025. It would be immensely helpful to the housing market where there is a tremendous pent-up demand with homelessness at a record level since the pandemic.
This uncertainty has affected the financial markets and that affects Americans’ overall wealth and health.
The Conference Board’s Index of Leading Economic Indicators (LEI) that attempts to predict future growth is the latest measure of consumer attitudes. It is also stuck, is the best way to describe it.
“The US LEI fell again in February and continues to point to headwinds ahead,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “Consumers’ expectations of future business conditions turned more pessimistic…given substantial policy uncertainty and the notable pullback in consumer sentiment and spending since the beginning of the year, we currently forecast that real GDP growth in the US will slow to around 2.0% in 2025.”
It would be nice if Trump understood this, so that he wouldn’t be in such a hurry to precipitate a tariff war, which by its nature creates more uncertainty and maybe higher inflation, and which is stopping the Fed from enacting more rate cuts at the moment.
So, Trump has everyone waiting to find out what his grand plan may be, if he has one.
Harlan Green © 2025
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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