Key Points:

• The spring season is crucial for the housing market, existing-home sales increase by an average of approximately 45 percent from the seasonal lows of December through February to the peak months of April through June
  
  
• Despite rising inventory, affordability remains a challenge due to high home prices and elevated mortgage rates.
  
  
• We’re likely to see a modest, seasonal increase in home-buying demand, but whether that demand can be sustained depends on the outlook for affordability.

The spring season is crucial for the housing market. Data from First America Data & Analytics shows that historically, existing-home sales increase by an average of approximately 45 percent from the seasonal lows of December through February to the peak months of April through June. During these months, both supply and demand increase. This seasonal pattern is influenced by factors such as weather, holidays, and the school year schedule, making spring and summer ideal for moving.

The housing market’s spring season is almost here, but the question remains whether it will roar like a lion or pass meekly like a lamb. Affordability challenges remain high, with national home prices remaining historically high alongside elevated mortgage rates. Despite the difficult conditions, there are some signs of resilient demand and pockets of activity that may emerge, as rising inventory in some areas could ease price pressures and offer more options for buyers and sellers. However, the signals from leading indicator data are mixed.

“Punxsutawney Phil may not be the most accurate forecaster, but when spring does arrive, the housing market will likely be more lamb than lion.”

A Lion or a Lamb Heading into Spring?

Seasonally adjusted purchase mortgage applications, a leading indicator of housing activity, showed a nearly 4 percent increase in January. Conversely, pending home sales, a forward-looking indicator based on contract signings, declined by 5.5 percent in December. Our latest Existing-Home Sales Outlook Report projects that existing-home sales declined by 0.3 percent in January but remained higher than one year ago. 

Regardless of the mixed messages from these measures, the purchase market has shown resilience despite mortgage rates breaching the 7 percent threshold in January. The last time mortgage rates crossed the 7 percent threshold in May 2024, mortgage applications, pending home sales, and existing-home sales declined by 2 percent, 2 percent, and 1 percent, respectively. The housing market’s new-found resilience is due to higher inventory levels, with active and new inventory up 17 percent and 4 percent, respectively, from a year ago. Inventory is expected to continue trending higher, potentially giving buyers more choices and negotiating power. Markets with more new-home construction and inventory will see greater affordability relief and increased sales—conditions that have been prevalent in Sunbelt markets.

Punxsutawney Phil’s (Housing) Prediction 

We've all heard the folktale of the groundhog predicting the weather—if he sees his shadow, there will be six more weeks of winter; if not, spring is on the way. A few weeks ago, Punxsutawney Phil predicted 6 more weeks of winter. Can we make a similar prediction for an early spring home-buying season?

While more inventory is welcome news for a supply-starved market, mortgage rates are expected to remain elevated as the Federal Reserve holds its current stance. Combined with historically high house prices, this means the affordability environment remains challenging for potential buyers. The bottom line -- we’re likely to see a modest, seasonal increase in home-buying demand, but it will still be constrained by affordability issues and the persistence of the rate lock-in effect compared to pre-pandemic spring markets. Leading indicators, such as purchase mortgage applications data, suggest that the early signs of the spring home-buying season are beginning to appear. Punxsutawney Phil may not be the most accurate forecaster, but when spring does arrive, the housing market will likely be more lamb than lion.

January 2025 Existing-Home Sales Outlook Highlights

For the month of January,  First American updated its Existing-Home Sales Outlook Report to show that:

• Existing-home sales for January are expected to decrease 0.3 percent from December’s pace of sales, and increase 5.2 percent compared with the predicted pace of sales a year ago.
  
  
• The largest contributors to the projected monthly increase in existing-home sales are positive economic growth (+0.3 percentage points) and an easing of credit conditions (+0.1 percentage points).

Methodology

Our Existing-Home Sales Outlook Report ‘nowcasts’ existing-home sales, which include single-family homes, townhomes, condominiums, and co-ops on a seasonally adjusted annualized rate based on the historical relationship between existing-home sales, U.S. demographic trends, house-buying power, and the prevailing financial and economic conditions, as well as momentum, a weight assigned to past values. Please note that the Existing-Home Sales Outlook Report is based on assumptions about demographic, economic and financial conditions. Actual values may differ from those projected. Recent existing-home sales estimates are subject to revision to reflect the most up-to-date information available on the economy, housing market and financial conditions.