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This week is filled with significant economic updates that could influence the bond market and, in turn, mortgage rates. From new home sales data to inflation reports, these key indicators will help shape the real estate landscape in the coming months. Here’s a detailed look at what to expect, why it matters, and how it could affect homebuyers and sellers.

New Home Sales Show Strength Despite Market Challenges

The U.S. Census Bureau reported that new home sales in December 2024 increased by 6.7 percent compared to the previous year. Sales were also up 3.6 percent from November, signaling that buyers remained active despite higher mortgage rates.

There are two primary reasons new home sales outperformed existing home sales last year. First, in many markets, there was simply more new home inventory available. Buyers who may have otherwise purchased an existing home turned to new construction as a viable alternative. Second, home builders provided incentives, such as mortgage rate buydowns and closing cost assistance, to attract buyers to new communities.

However, this dynamic may shift in 2025. More existing homeowners are deciding to sell, which could increase supply and provide buyers with additional options outside of new construction. Additionally, while mortgage rates remain elevated, builder incentives could become more difficult to maintain as profit margins narrow.

Consumer Confidence Report (Tuesday): A Key Indicator for Buyer Demand

The Consumer Confidence Report measures how optimistic or cautious consumers feel about the economy. This data is important because consumer sentiment plays a role in major purchasing decisions, including homebuying.

If consumer confidence declines, demand for housing could weaken, leading to lower bond yields and potential mortgage rate reductions. On the other hand, if confidence remains strong, buyers may continue to enter the market, possibly keeping rates elevated.

Federal Reserve Meeting and Rate Decision (Wednesday): No Changes Expected, But Hints for the Future

The Federal Reserve’s first meeting of 2025 is one of the most anticipated events of the week. While the Fed is not expected to announce an immediate rate cut, the market will closely watch Chair Jerome Powell’s comments for any indications of future policy changes.

Investors and analysts will be looking for clues on whether the Fed believes inflation is under control and if rate cuts could be on the horizon later in the year. If the Fed signals that rate reductions are likely, mortgage rates could ease. Conversely, a more cautious approach could mean rates remain higher for longer.

Q4 GDP Data (Thursday): Is the Economy Slowing Down?

The fourth-quarter Gross Domestic Product (GDP) report will offer insight into the overall health of the economy. Strong GDP growth indicates a resilient economy, which could keep interest rates higher for longer. However, if the report shows signs of economic cooling, it may reinforce the case for rate cuts in the coming months.

For homebuyers, a slowing economy could mean lower mortgage rates in the near future, making it a critical report to watch.

PCE Inflation Report (Friday): The Fed’s Preferred Inflation Gauge

The Personal Consumption Expenditures (PCE) Index is the Federal Reserve’s preferred measure of inflation. This report will provide important data on whether inflation is continuing to ease or if price pressures remain persistent.

If inflation comes in lower than expected, it could push bond yields down, leading to lower mortgage rates. However, if inflation remains stubbornly high, the Fed may continue its cautious approach, keeping rates elevated.

Is Now the Right Time to Buy a Home?

With mortgage rates still fluctuating, many prospective buyers are wondering if they should wait until spring when more homes are listed, or act now before rates potentially rise again.

Historically, home prices tend to be lower in the winter months. Data from 2010 to 2024 shows that home prices in January and February were, on average, 15 percent lower than peak prices in June. Sellers are also more likely to accept offers below asking price during this time due to lower competition.

For buyers looking for the most choices, the spring market typically brings a surge of new listings. However, increased inventory also leads to heightened competition, which can drive prices higher and result in bidding wars.

Ultimately, the best time to buy depends on individual priorities. If securing a lower price is the main concern, winter offers better negotiating opportunities. If having more selection is the priority, waiting for spring may be the better option.

Home Sales Show Resilient Demand Despite High Rates

Despite mortgage rates remaining elevated, existing home sales rose for the third consecutive month in December, reaching a ten-month high. Year-over-year, closings were up 9.3 percent, marking the largest annual increase since mid-2021.

This momentum indicates continued buyer confidence in homeownership, supported by job and wage growth. However, inventory remains tight, with only 872,000 active listings available in December. The imbalance between demand and supply continues to support home price stability, though affordability challenges persist.

Rental Market Trends Signal Lower Inflation Ahead

Shelter costs account for nearly half of the Core Consumer Price Index (CPI), making them a key driver of inflation. However, real-time rental data from sources such as Zillow and Realtor.com suggests that rent growth is slowing.

Since CPI shelter data tends to lag behind actual rental trends, this slowdown is expected to gradually reflect in future inflation reports. If rental costs continue to ease, it could contribute to lower inflation overall, which may lead to more favorable mortgage rates in the months ahead.

Labor Market Softening Could Influence Fed Policy

Initial jobless claims rose to 223,000 last week, while continuing claims increased to 1.899 million. This indicates that workers are taking longer to find new employment, suggesting a potential slowdown in hiring.

A weaker labor market could reduce upward pressure on wages, a key factor in inflation. If inflation cools as a result, the Federal Reserve may feel less inclined to maintain elevated interest rates, potentially paving the way for lower mortgage rates in the near future.

Looking Ahead: What to Expect for Mortgage Rates in 2025

The combination of strong housing demand, slowing rental inflation, and signs of a softer labor market suggests that economic conditions could be shifting in a direction that supports lower mortgage rates. However, key reports this week, particularly the PCE inflation data and the Fed’s policy stance, will be critical in determining the timeline for any potential rate cuts.

For homebuyers and sellers, staying informed about these economic indicators is essential in making well-timed decisions. With changing market dynamics, working with an experienced real estate professional can help navigate the complexities of buying or selling a home in 2025.