Soured sentiment depress rates

Market participants are getting worried about the economy. February consumer confidence registered the sharpest drop in three-and-a-half years, which, if sustained, may limit U.S. household willingness to spend. The manufacturing sector, which is more exposed to tariffs than the service industry, shows that prices are rising but new orders and employment are below expectations and falling. As a result, Atlanta Fed’s GDP Nowcast predicts a contraction in first-quarter GDP growth.

A cooling labor market combined with upside inflation pressure puts the Fed in a tough position. The upcoming Bureau of Labor Statistics employment report on March 7 may provide additional insight, but it won’t yet fully reflect potential impacts from government layoffs. For now, downside risks stemming from uncertainty over fiscal, labor, and economic policies have continued to push mortgage rates toward the lower levels seen in early December.

Impact on the housing market

The recent dip in mortgage rates should entice both buyers and sellers back into the market earlier this home shopping season. Mortgage and refinancing activity tentatively seems to be picking up in the last week of February, consistent with the increase in engagement when rates fell in September 2024.

Of course, rates are not guaranteed to stay low. Right now markets are spooked on economic growth, but the market narrative could easily shift again to upside inflation concerns, and cause mortgage rates to rise again. Ultimately, buyers shouldn’t try to time a home purchase around future mortgage rates. Rather, if a buyer finds the right home that fits their needs, the dip in rates might be a bonus.