There’s good news in the housing market: An improvement in housing demand in the early months of 2023 has translated to a healthy start to the spring selling season. Not only that, but mortgage rates are “behaving themselves,” so let’s take a look behind the curtain at what is going on there, especially since the monthly inflation data was released last week.

A key measure of U.S. inflation published last Wednesday showed signs of price increases moderating in March. The Consumer Price Index (CPI) climbed 5 percent compared to last year, slowing from an annual pace of 6 percent seen in February. However, core CPI, which excludes volatile food and energy prices, rose 5.6 percent Y/Y, in-line with expectations and higher than the 5.5 percent increase seen the previous month.

Orion’s management has noted that some of the Federal Reserve’s staff also projected a"mild recession" starting later in 2023 while bets are increasing that the central bank will go for another 25 basis points on May 3, bringing the Fed Funds Rate above 5 percent for the first time since the lead-up to the Global Financial Crisis.

With an excess of data coloring the economic picture, borrowers and economists alike are focused on indicators and trends this spring to help understand the health and stability of the housing market and the overall economy, and Orion’s AEs are watching closely.

Inflation, jobs, and affordability are important to homeowners and those seeking to buy a home. Labor market and inflation data are the “two biggest indicators” to watch in the coming months. Inflation has remained at levels well above the Federal Reserve’s target of 2% but, as noted above, has shown signs it may be past its peak, while the labor market has remained strong despite nine short-term rate hikes to the Federal Funds rate. Ideally, cooling inflation and a labor market that does not “crash” will help provide stability in the economy and give confidence to builders and buyers.

Orion’s management and our brokers know that in housing, stability is key. Stability allows builders to feel comfortable starting new homes, and stability allows consumers to feel comfortable making the largest purchase of their life. Mortgage rate stability would benefit affordability and potentially allow more first-time buyers to enter the market. In recent months, the share of all-cash buyers has remained at an elevated level, representing 28% of all existing-homesales in February, a concern for rate-sensitive buyers.

In terms of rates, the 10-year Treasury note falling from 4 percent to below 3.5 percent,and staying there, is “a fairly big move” that suggests economic weakening may occur later in 2023. Home buyers and single-family home building will benefit from those lower interest rates that are more of a caution sign for the overall economy, but probably indicate the home building sector is moving closer to recovery mode.

Neither Orion, nor our experienced brokers, are in the business of predicting interest rates, and instead focus on our service levels, product offerings, and offering a competitive rate to our clients.

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