April 29, 2024 – Mortgage rates rose further last week as the latest macroeconomic report shows that the U.S. economy continued to grow moderately with inflation remaining sticky and declining slower than expected. Despite being in an environment where rates stay higher for longer, there are signs that suggest that housing consumers are gradually adjusting to the new normal. New home sales bouncing back strongly in March, for example, is an indication that homebuyers still want to buy if they could find a way to get back into the market.

New home sales have the strongest pace in six months: New home sales in the U.S. bounced back in March after a brief retreat in February, with the number of newly constructed single-family houses sold rising 8.8% month-over-month and surging 8.3% year-over-year. Last month’s sales were the strongest sales pace since September 2023. With interest rates back on a rising trend since mid-March, more homebuyers turned to the new home market as many builders were still offering price discounts, mortgage rate buy-downs, and other incentives to offset the eroding housing affordability conditions. Ample inventory in the new home market was another reason for the increase in sales of newly constructed homes. The supply of new homes continued to rise and reached the highest level since February 2021, with the count of housing units for sale climbing to 477,000 in March, an increase of 10.2% from the same month last year. The March inventory level is equivalent to a supply of 8.3 months and remains well above the historical average of 5.9 months. Meanwhile, prices for new homes in March inched up from February but declined from a year ago. The national median price dropped 1.9% year-over-year to $430,700.

Mortgage delinquency rate falls from a year ago: Mortgage delinquency at the national level dipped on a year-over-year basis for the first time in six months, according to the latest Loan Performance Insights released by CoreLogic. Mortgages that were late in payment by at least 30 days or more dropped 0.2 percentage points from 3.0% in February 2023 to 2.8% in February 2024. The share of mortgages that were past due for six months or more reached the lowest level in 15 years. Almost all stages of delinquency were at near record lows in February and only four states reported year-over-year increases in overall delinquency rates, while eight states remained unchanged from a year ago. With home prices expected to rise further in coming months and the U.S. likely to avoid an economic downturn this year, the mortgage delinquency rate should maintain its stability throughout the rest of the year.

US economic growth slows in the first quarter: The U.S. economy continued to grow in the first three months of the year but at a pace slower than expected. The first quarter Gross Domestic Product (GDP) increased from the previous quarter by an annualized rate of 1.6%, a sharp decline from Q4 2023’s 3.4%, and was the weakest pace of growth since Q2 2022. A sharp pullback in exports, a decrease in inventory investment in the private sector, and a slowdown in government spending all contributed to the softening in growth in economic activity. Consumer spending, while still gaining at a healthy pace, also slowed to 2.5% in Q1 2024 from 3.3% in the prior quarter. Despite the slowdown in economic growth, inflation in Q1 2024 remained stubbornly high. The Personal Consumption expenditure (PCE) Deflator - a key inflation gauge preferred by the Federal Reserve - increased 3.4% in Q1 2024, the biggest gain in a year. The pick-up in inflation indicated by the latest GDP report likely reaffirms the Fed’s decision to hold the rate-cut movement for a little longer.      

Saving rates down as spending outpaces income growth: As consumers spending remained resilient amid a sticky inflation environment, Americans continued to run down on their savings at the end of the first quarter. The personal saving rate in March 2024 declined on a month-over-month basis for the second straight month to 3.2%, the lowest since October 2022. It was also well below the roughly 7% share before the pandemic. With personal spending increasing monthly at 0.8% while personal income was only up 0.5% for the same time period, consumers were drawing more from their savings than they had in the past 17 months. As consumers continue to deplete their savings and cost of borrowing remains elevated, future declines in personal saving rate could put a drag on consumer spending growth, and the economy will likely slow in coming months if wage growth remains stagnant or begins to decline.

Rates could fluctuate as the market waits for a Fed’s Update: Mortgage rates reached the highest levels since late November as recent economic reports indicate that inflation has remained stubbornly high in the past couple of months. The average 30 year fixed-rate mortgage reached its recent bottom in mid-January but has since climbed more than 50 bps in the last three months. The 10-year Treasury yield had been rising and hit the highest level in five months last Wednesday before easing back down in the last two days. Interest rate volatility will likely remain for the rest of the week as the market speculates on the Fed’s next policy rate’s move and its outlook on future rate cuts.

Note: The weekly market minute report is updated every Monday by 6:00 PM PST.