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Spring is traditionally the best time to put a home on the market, with ideal weather and the end of the school year making it the perfect time for people to move. However, the Federal Reserve’s actions are impacting potential homebuyers. Initially expected rate cuts to lower mortgage rates have not materialized as inflation has heated up, leaving central bankers with few options other than keeping rates high or potentially raising them. This has caused the spring homebuying season to slow down, which could spell trouble for the rest of the year.

The current situation is a bit of a catch-22, as higher rates are limiting inventory. Homeowners who locked in low rates during the pandemic are hesitant to sell and give up their low monthly payments, especially in expensive markets where mortgage costs are more sensitive to rate changes. Buyers are hesitant to enter the market with sharp increases in mortgage rates, creating uncertainty about overall affordability. Housing affordability is closely tied to the number of homes on the market, with homeowners on low-rate mortgages having little incentive to move with high rates and rising home prices.

While existing homeowners are more likely to sit out this spring due to high rates, first-time homebuyers are still entering the market, driven by factors such as high rent and growing families. New home construction in states like Texas and Florida is providing relief in terms of prices, attracting more buyers to those markets. Homebuilders are offering incentives like mortgage buy-downs to encourage buyers to move into less developed areas. The spring homebuying season is crucial for the housing market, with a significant portion of home sales occurring between March and June on average since 1999.

Freddie Mac’s chief economist expects mortgage rates to stay high for longer, impacting housing inventory as homeowners are reluctant to give up their lower rates. Despite this, demand for mortgages from Freddie Mac is stronger this spring compared to last year, which will likely put upward pressure on home prices. Zillow’s senior economist also predicts home prices to grow higher this year, but not by more than 2%. There is a possibility of a secondary boost to home sales if rates fall later in the year, but investors are currently predicting the first rate cut of the year to come in November.

Overall, the spring homebuying season has been impacted by high mortgage rates, limiting inventory and potentially affecting the rest of the year in terms of home sales and prices. First-time homebuyers are still entering the market, attracted by factors like high rents and growing families, despite the high rates. New home construction in certain areas is providing relief in terms of prices, attracting more buyers to those markets. The future outlook for the housing market is somewhat uncertain, with potential for a secondary boost in home sales later in the year if rates fall, but current predictions indicate a rate cut may not happen until November.

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