By Shaina Mishkin

After two difficult years, agents are optimistic that home buyers will return this spring. But fluctuating mortgage rates could push the long-awaited recovery down the road.

Economists expect that existing-home sales will finally perk up this year after dropping to the lowest level since the mid-1990s for two years in a row. Forecasts are divided on the size of the rebound: The National Association of Realtors expects that sales will rise as much as 12%, while Fannie Mae anticipates a more modest 2.3% increase.

There's one big point of uncertainty hanging over that turnaround: home financing costs.

"The spring is going to depend a lot on what happens with mortgage rates, " says Hannah Jones, a senior economic research analyst at Realtor.com. ( News Corp, which owns Barron's, also owns Realtor.com operator Move.)

Mortgage rates have been above 6% -- the rate economists often cite as a psychological barrier for some buyers -- since September 2022, according to Freddie Mac data. They average just under 7% this year, well above the 10-year prepandemic norm of about 4% and the sub-3% levels seen in 2020 and 2021.

It was a chilly January for home sales, early data suggest, but real estate agents are reporting green shoots in February. "Last year, even our serious buyers wanted to 'wait and see' if rates would go down, which isn't the case now," says Dana Bull, a Compass agent based in Boston. Bull says her team expects to have eight buyers under contract in February, up from four at the same time last year.

Some house hunters have adjusted to higher monthly payments, agents say. In Spokane, Wash., buyers who are moving because they want to instead of necessity "are coming out of the woodwork," says real estate broker Mike Crowley. "Buyers have realized interest rates aren't going to come down like they hoped."

Mortgage rate forecasts have become more conservative as inflation remains sticky and the economy keeps growing at a healthy clip. Fannie Mae, for example, is calling for the 30-year fixed mortgage rate to average 6.7% in the first quarter and 6.6% in the second; as recently as October, the forecaster was expecting rates below 6% over that period.

Forecasts obscure the wild swings that economic data and political developments can bring -- and are expected this year. "Mortgage rates could be volatile in the weeks ahead, which could set us up for an unpredictable spring housing market," Lisa Sturtevant, the chief economist of home listings network Bright MLS, wrote last week.

The 10-year Treasury yield, a benchmark for mortgage rates, will continue to be one of the quickest indicators of their trajectory.

Both mortgage rates and the 10-year Treasury yield popped in response to January's consumer price data: The 30-year fixed rate measured by Mortgage News Daily rose 0.08 percentage point to 7.13% the day January's hotter-than-expected consumer price data was released -- then erased the gain entirely as investors evaluated producer price data the following day.

Signs that inflation is worsening or uncertainty about political policies, such as tariffs, could weigh on buyers' psyches, says Jade Rahmani, a Keefe, Bruyette & Woods analyst covering housing-related companies. "Sentiment might not be all that great, which means maybe the spring selling season is delayed." They could also cause mortgage rate volatility as investors evaluate the new information.

Lower mortgage rates would drive more buyers into the market -- but they don't necessarily need to fall for sales to pick up. "Recent mortgage rate stability is benefiting potential buyers, as purchase demand is stronger than this time last year," Sam Khater, Freddie Mac's chief economist, said. "This is an indication that a thaw in buyer activity could be on the horizon."

The coming days will set the tone for the spring buying season ahead. Home sale activity typically ramps up by more than a third between February and March, according to the National Association of Realtors.

Michael Read, a real estate agent and mortgage lender in Morristown, NJ, says he has been getting more outreach calls over the past week, which he takes as a good early sign.

"We are going to know, in the next six to eight weeks, whether people are going to bite the bullet," he says.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com

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February 16, 2025 14:00 ET (19:00 GMT)

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