Fed’s Beige Book shows recent moderation in mortgage rates propped up demand for homes

Key Takeaways:

– Moderation in mortgage rates led to increased demand for residential real estate
– Limited inventories hindered actual home sales
– Spring homebuying season started earlier than usual in districts like New York and Dallas
– Expectations for stronger demand and less restrictive financial conditions in the next 6-12 months
– Federal Reserve Chair Jerome Powell emphasized the need to conquer inflation before cutting interest rates
– Statements on housing conditions from various Federal Reserve districts
– Positive outlooks for future economic growth
– Expectation that the FOMC will leave benchmark interest rates unchanged at the next meeting
– Real estate activity rose slightly overall in the San Francisco district
– Variable-rate mortgages at below-market interest rates were offered to attract homebuyers in some markets


Moderation in mortgage rates led to a pickup in demand for residential real estate, but limited inventories across the country hindered actual home sales, the Federal Reserve reported in its Beige Book survey of regional business contacts that was published Wednesday. 

Several Fed districts reported that a dearth of for-sale inventory contributed to faster home price growth since January. The spring homebuying season, which got underway a bit earlier than usual, was off to a good start in districts like New York and Dallas.

“Should mortgage rates fall, demand for residential real estate would increase, encouraging buyers who had been waiting on the sideline to move forward with home purchases,” according to the Beige Book.

The outlook for future economic growth remained generally positive as economists, market experts and business organization leaders interviewed for the report noted expectations for stronger demand and less restrictive financial conditions over the next six to 12 months.

The Beige Book, which was compiled by the Federal Reserve Bank of San Francisco using information gathered on or before Feb. 26, does not reflect the most recent rise in mortgage rates, which have surpassed 7% on HousingWire’s Mortgage Rates Center.

The Beige Book is published two weeks before each meeting of the policy-setting Federal Open Market Committee. The FOMC is expected to leave its benchmark interest rate unchanged when policymakers gather on March 19-20. The benchmark rate was last changed in July 2023, when it was raised to a range of 5.25% to 5.5%. 

Federal Reserve Chair Jerome Powell reiterated Wednesday that policymakers still need to gain “greater confidence” that the battle against inflation is conquered before cutting interest rates.

“We believe that our policy rate is likely at its peak for this tightening cycle,” Powell said during testimony before the House Financial Services Committee. “If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year.”

Following are excerpts of statements on housing conditions from the Federal Reserve districts, drawn from the newly released Beige Book


Boston: Residential Realtors expressed growing optimism as both property listings and pending home sales increased. Contacts cited modest declines in mortgage rates since last fall as a likely reason for buyers’ increased willingness to enter the market. 

Although inventory levels remained low, listings increased by modest to significant margins around the First District in recent months, lending increased optimism for sales moving forward. Still, contacts emphasized that the number of units for sale stayed far short of what they considered a balanced market, and that a dearth of inventories had contributed to faster house price growth from 2022 to 2023.

New York: Housing markets strengthened as the spring selling season got underway a bit earlier than normal. While inventory generally remained exceptionally low, inventory in New York City has begun to normalize. Many buyers who were waiting for a reprieve in mortgage rates have started to return with the intention of refinancing later. Though mortgage rate lock-in continues to limit new listings, particularly in the New York City suburbs, listings have increased in upstate New York as people have continued to leave the area for warmer climates. 

Still, with such limited inventory, home prices have continued to press higher. Bidding wars were prevalent in the New York City suburbs but have been more limited in upstate New York.

Philadelphia: The inventory of for-sale properties remained extremely low as it has since the pandemic began. But real estate agents noted that higher interest rates have severely limited new listings over the past year and were responsible for the significantly lower level of closings.

New-home builders continued to report steady sales at relatively strong levels, in part because of the lack of existing for-sale homes. Most expect their pipeline of contracts to keep construction busy through the year.

Cleveland: Residential construction contacts reported that demand increased as mortgage rates declined. But real estate agents indicated existing-home sales changed little because inventory remained low. 

Looking ahead, homebuilders and real estate contacts anticipated that demand would increase should mortgage rates fall, encouraging some “customers [who had been] waiting on the sideline” to move forward with home purchases.

Richmond: Respondents noted an increase in listings and buyer activity, but the elevated mortgage rate made buyers more tentative on making home purchase decisions. Sales prices have flattened, but there were still multiple offers on many homes. 

Days on market increased slightly but remained below historic averages. The home construction market was constrained as it was difficult to find land and to receive permitting for new developments. Residential construction costs started to moderate this period.

Atlanta: As mortgage rates retreated from cyclical highs, homeownership affordability improved throughout the district. But home sales in most major markets ended the year well below seasonal norms and remained significantly behind pre-pandemic levels. Potential buyers locked into historically low mortgage rates remained reluctant to move, and migration into the district moderated through 2023, resulting in diminished housing demand. 

Existing-home inventory levels were also suppressed by the “lock-in effect,” resulting in flat to moderate price growth in many markets. Demand for newly constructed homes was boosted by the lack of existing homes and builders. 

Chicago: Residential real estate activity was down moderately, although prices were steady overall. High interest rates and a low supply of existing homes for sale continued to hold back activity. 

St. Louis: Residential real estate sales have slowed since our previous report. Contacts in Arkansas and Tennessee reported that the low end of the market continues to be strong, while contacts in Missouri and Southern Indiana reported higher-end homes selling better. Rental rates for residential real estate have remained unchanged since our previous report. 

Minneapolis: Single-family development remained soft, with modest but spotty increases in some district markets compared with a year earlier. A Minnesota contact said that “consumers quite abruptly stopped spending discretionary income on larger home improvements.”

Dallas: Home sales rose during the reporting period, and contacts noted that the spring selling season was generally off to a good start. Cancellation rates were down, buyer incentives were less prevalent, and builders said they were raising prices slightly in some markets. 

Outlooks were positive, although contacts cited economic and political uncertainty, diminished affordability and tight lending.

San Francisco: Real estate activity rose slightly overall. Residential construction strengthened. Demand for single-family homes picked up slightly, as mortgage rates, though still elevated, moderated a bit in recent weeks. To attract reluctant homebuyers, some homebuilders began offering variable-rate mortgages at below-market interest rates, which revert to market pricing after a year, at which point buyers are reportedly expecting rates to be lower. 

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