The stars were aligning for a strong spring home buying season.
The 10-year government bond yield has fallen below 4%, and home loan interest rates have finally fallen below 6%. The first two jobs reports of the year were mixed, with average wage increases a bright spot among other negative indicators. Existing and pending sales also rose in February, with active inventory up 5% year over year as sellers began relisting homes after a painfully slow winter.
But the joint U.S. and Israeli attack on Iran became a black hole, steadily tearing apart the supernova of excitement that had been building among buyers and sellers who were looking to take advantage of affordability and other market benefits.
“We had about a week of good things, but now those stars aren’t aligned. Mortgage rates are picking up,” Jeff Tucker, Windermere’s chief economist, told Inman. “I’m not a geopolitics expert. Iran is laying mines in the Strait of Hormuz, and there are questions about whether this will end anytime soon.”
jeff tucker
“So even just a few days ago, oil futures prices were improving very quickly due to news such as: [President] President Trump has clearly indicated that the conflict is over. Now, I really don’t know. “We’re using this yo-yo,” he added, “but we’re at the beginning of the spring home buying season. Depending on how quickly the issues are resolved, there is still potential for limited impact.”
Mr. Tucker and other economists said that even if the conflict were to end tomorrow and the worst-case economic and housing scenario was avoided, high gas prices would likely continue and would have a bigger impact on markets that rely on cars rather than on the walkable, public-transit metro system.
As of March 13, oil futures have risen 40% since the conflict began on February 28. Gas prices don’t necessarily move in sync with crude oil futures, according to a St. Louis Fed representative. However, gasoline prices tend to rise by about 2.4 cents for every $1 increase in the cost of a barrel of crude oil, which explains why average gasoline prices rose from $3 to $3.60.
“This happened over the course of a week and a half,” George Ratiu, vice president of research at the National Apartment Association, told Inman. “I don’t think there’s a state where gas prices are less than $3 right now, and that’s important.”
George Latiu
Ratiu said this increase is not only noticeable in terms of pumps, but also spills over into the prices of food and other goods. Transportation companies need to offset rising diesel costs, which have risen to an average of $5.11 per gallon. Crude oil is also the key to making endless everyday items, including things as simple as plastic bottles.
“Oil supports much of our economic activity and commerce,” he says. “Fuel is fundamentally used to move goods across oceans, across roads, and the last mile, to your home, especially in e-commerce today. Everything we do is highly dependent on fuel costs. And when fuel costs rise in this way, they are very likely to ultimately impact the bills of individuals and households.”
While Americans will continue to feel the pinch of rising fuel costs, which are expected to last until 2027, Tucker and Latiu eased fears by saying we are unlikely to experience an energy crisis like the 1970s.
In 1973 and 1979, the United States experienced two oil crises caused by the Yom Kippur War and the Iranian Revolution. Both crises required the country to conserve gasoline, and some states mandated gas rationing on odd-even days. Both economists said that was unlikely to happen at this point, as the U.S. has significantly increased domestic production in states such as Oklahoma, Texas and Louisiana.
“I think it’s natural for people to be afraid of the consequences,” Tucker said. “I think the only possible impact is higher prices, and no one is happy about that. It’s still really bad news. But we’re a little bit insulated from the need to ration gas.”
In addition to weighing on consumer pocketbooks and sentiment, higher gas prices could also impact the housing market through higher material costs for home builders and higher inflation, said Odeta Cusi, First American vice president and deputy chief economist. Cusi said the Fed may feel more pressure to control “inflationary dynamics” if the conflict drags on into the spring and summer.
“We monitor key inflation reports including: [Personal Consumption Expenditures Price Index] and [Consumer Price Index] It’s important. “These two important aspects of the economy will give us a better understanding of what the Fed will do with monetary policy. The Fed will need to strike a balance between maintaining full employment on the labor market side and keeping inflation stable,” he said.
Mr. Tucker told Mr. Inman that the ongoing oil crisis makes it difficult to achieve the balance Mr. Kushi referred to. Economists at Windermere said it’s difficult to know what the Fed will do, whether it will postpone its planned rate cuts or actually “raise” rates. “It’s not something everyone likes,” he said of the option of raising interest rates. “But that’s the cure for demand shocks.”
Odetakushi
While the mere thought of the Fed raising interest rates is enough to throw government agencies and consumers off track, economists said it’s important to remember that the 10-year Treasury yield is a better predictor of what will happen to mortgage rates. Currently, the yield is relatively stable at 4.25%, although there has been some fluctuation since February 28th.
This (unfortunately) caused mortgage interest rates to rise above 6%, to 6.11% to be exact. But the rate is still below the 2023 peak of 7.8% and may be enough to keep homebuyers and home sellers in the market who need to close this spring.
“If this situation continues, I think it could start to impact the spring home buying market,” Cusi said. “But at the moment, the 10-year Treasury is not moving that much. There is still hope for the spring. As we have written, our outlook is [reports]is more positive. ”
Mr. Tucker, Mr. Ratiu and Mr. Cusi said the market was unlikely to collapse even if the conflict dragged on and several worst-case scenarios occurred. Ratiu said that even in the midst of the Great Recession, there were still 4 million home sales, most of which were to consumers forced to move due to life changes, such as a new job, marriage, or the need for more space for a growing family.
“I don’t think the market will necessarily dry up in any way. I think trading will continue,” Ratiu said. “I think this could be a great time in the market because, when you put everything together, sales activity has been slow for the last three years.Sellers may be more willing to transact than ever before, and we are seeing signs, at least so far, that there are more people looking to put their properties on the market this season.”
“So we still think spring can be a great time for a lot of people looking to buy,” he added.
Email Marian McPherson
