March 31, 2025 – After a slow start for the year, new home sales bounced back in February as mortgage rates began trending down and builders continued to offer sales incentives. While rates have been moving mostly sideways in the past few weeks, they have remained relatively moderate compared to recent highs reached in early January. Housing demand, as such, should see an improvement in March and April if market conditions stabilize. New tariffs and their economic implications, however, may have an impact on the housing market and could create headwinds for buyers and sellers in coming months.

New home sales inch up in the U.S. but drop in the West: Sales of new single-family homes bounced back with an increase of 1.8% on a month-to-month basis and registered a seasonally adjusted annual rate of 676k in February. New home sales were slightly below the consensus expectations of 679k units but improved 5.1% from the same month of last year. Sizable pullbacks in sales activity from the prior month were observed in the Northeast (-21.4%) and the West (-13.6%) but new home sales in the Midwest (20.6%) and the South (6.6%) improved considerably, likely due to better weather conditions in the regions. Lower mortgage rates were likely the motivating factor that move buyers off the sidelines, as the average 30-year fixed rate mortgage (FRM) dipped nearly 20 basis points (bps) throughout the month of February. Sales incentives such as price cuts and mortgage rate buy-downs offered by builders might also have helped increased sales. With rates declining further in March, sales will hopefully climb further in the next monthly report as the market gears up for the spring homebuying season.

Fed’s preferred inflation gauge higher than expected: The personal consumption expenditure price index (PCE) – the Fed’s favorite inflation indicator – increased 0.4% on a month-over-month basis in February and was up 2.5% from a year ago, according to the Department of Commerce. Excluding food and energy, the core PCE had a 2.8% year-over-year gain, and the increase was higher than the consensus expectations of 2.7%. The 0.4% monthly increase of the core PCE was also the biggest jump since January 2024. While the latest PCE reading is not a complete surprise, the Federal Reserve officials will likely have to practice their “wait-and-see” strategy on rate-cutting a little longer. The same report also suggests a waning of the U.S. consumer resilience, as real personal spending came in with just a 0.1% gain in February and spending on services dropped 0.1% from the prior month. The weakness in consumption could just be a pullback from the solid figure observed at the yearend, or it could be a reflection of the change in consumers behavior as they adjust to new economic uncertainties.    

Labor market remains healthy as unemployment benefits hold steady: Initial jobless claims for the week ending March 22 slipped to 224k, a dip of 1,000 from 225k recorded in the prior week, according to the latest data released by the Department of Labor. U.S. applications for unemployment have remained stable in the past four weeks, despite concerns that job cuts ordered by the Department of Government Efficiency (DOGE) could push jobless claims up in the weekly layoffs report. While more federal workers are filing for unemployment benefits than in the past, they are not escalating on a weekly basis. A total of 821 federal workers filed initial claims under the Unemployment Compensation for Federal Employees program for the week ending March 15, a decline from 1,066 filings recorded in the week prior. Despite not seeing a significant surge in fillings by federal workers, claims in the DC. area have indeed risen. Economists expect the impact of federal workers’ layoffs to begin to show up in the March job report, which is scheduled to be released on April 4^th.

Mortgage rates have been moving mostly sideways in March: Since mortgage rates hit their near 3-month low in early March, they have been moving broadly sideways for the past three weeks. In the last 20 plus days, we have seen reports that show inflation ticked up slightly last month, retail sales bounced back after a sharp decline, consumer sentiment dived to a 28-month low, and the Fed held interest rates steady but maintained that they will likely cut rate two times this year. Despite all these announcements, the direction of rates continued to align closely with the volatility of the stock market as investors speculated on the economic implications of the latest trade policies. With new tariffs expected to be announced in the next couple days and the March jobs report scheduled to be released later this week, interest rates could move in either direction and will likely continue to fluctuate in the near term.

REALTORS® expect more sellers to enter the market: As the market gears up for the upcoming spring homebuying season, practitioners’ sentiment appears to be improving from the start of the year. The market outlook from NAR’s REALTORS® Confidence Index for sellers increased compared to last month, with 29% of survey respondents expecting a year-over-year increase in seller traffic in the next three months, an inch-up from 27% in January and a gain from 26% a year ago. Buyer traffic, on the other hand, remained unchanged from a month ago, with 27% of respondents expecting an increase in the next three months. The share was also a decline from the 30% recorded in February 2024. With more listings available in the market than a year ago, the U.S. housing market was less competitive with homes listed receiving an average of 2.3 offers in February, as compared to 2.6 offers in January and 2.7 offers a year ago. More first-time buyers were in the market last month, as they represented 31% of all buyers, an increase from 28% in January and 26% a year ago. Among all buyers, 16% of them purchased their properties for non-primary residence use and 5% purchased their units for vacation purposes.

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