Spring Home Buying Season Has Been Weak. Here's Why That Could Change Soon.

This weekend, the clocks will be sprung forward. Will the housing market be next?

Recent weeks have seen a slowdown in home buying. Housing costs are likely to be the culprit. However, prospective buyers could see a decrease in monthly mortgage payments.

According to the Mortgage Bankers Association, the volume of mortgage applications has remained relatively low into the first week in March. This is one indicator of borrower demand. The purchase index of the trade group, which measures the volume of home loan applications, increased by 7% seasonally in its latest week (March 3), an increase from a low of 28 years one week earlier.

This is not the only data that has shown a slowdown in recent week. Redfin's gauge for pending sales fell roughly 16% compared to the year before and was about the same as the week before, the brokerage reported on Thursday. Redfin released that this is an anomaly in March when sales tend to increase throughout the month.

The slowdown in home loan applications is due to higher mortgage rates. Joel Kan, the Mortgage Bankers Association's deputy chief economic officer, stated that buyers are 'waiting on the sidelines' for rates to drop.

Last week was a tough week for patient borrowers. Freddie Mac's measure of the average 30-year fixed mortgage rate continued to rise to 6.73%. This is the highest rate since November 2012, when it hit 7.08%.

Redfin last week stated that rising mortgage rates and still-high home prices have led to an increase in the average monthly mortgage payment. Redfin stated that if a buyer purchases a home for the median asking price and average rate of mortgage, they would owe $2563 per month. This is an increase of $41 over the previous week and the highest monthly payment since 2015, according the brokerage's data.

This data is just the latest in a series of gloomy months for the housing market, driven by mortgage rate rises -- but there are reasons to be optimistic about mortgage rates moving forward. Investors anticipated a more hawkish Federal Reserve to respond to the hotter-than-expected January data and comments by Jerome Powell, Federal Reserve chair. A new set of February data, along with other factors in the bond market, could change their course.

Recent rate movements may offer some relief in the short-term. Some daily mortgage rates had dropped significantly on Friday. Rocket Mortgage, a large loan originator quoted 30-year fixed rate purchase loans at 6.5%. This is 0.25 percentage point less than the previous day. Mortgage News Daily's Friday survey found that the average rate for a 30-year fixed mortgage was 6.76%. This is 0.24 percentage point less than the previous day. These declines are due to the February mixed jobs report, as well as the news about SVB's failure that may have pushed the 10-year Treasury yield down.

Although the jobs report was stronger that expected, the slower wage growth in February bodes well to inflation and ultimately mortgage rates, Lawrence Yun (the chief economist of the National Association of Realtors) stated in a statement. He stated that inflation is moving towards deceleration, which means that it is still rising, but at a slower pace, and that the mortgage rate could also be tilted downward in the coming week.

Tuesday will see the release of February inflation data by the Bureau of Labor Statistics, which will be the next economic test of mortgage rates. Redfin's Deputy Chief Economist Taylor Marr stated in a Thursday statement that the report could send mortgage rates'meaningfully up or down'. Marr said that home buyers and sellers are extremely sensitive to fluctuations in mortgage rates. Rates starting to fall would likely bring back some sellers and buyers, while rates rising would push more away.

In a Tuesday interview, Robert Dietz, chief economist of the National Association of Home Builders, stated that there was a rise in housing demand indicators earlier in the year, as mortgage rates dropped in January. "If mortgage rates could stabilize at 6% or below, then I believe that would be a level at which housing affordability could be maintained, it could lead to solid levels of demand.

This rate would not support sales at levels seen during the peak of the recent boom, Dietz stated, but it would be sufficient to start a housing recovery.