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While historians love to debate the exact setting of Jesus' birth, local tradition tends to favor the birth of Jesus in a cave. For example, the Catholic Encyclopedia explains, "About 150 we find St. Justin Martyr referring to the Savior's birth as having taken place in a cave near the village of Bethlehem; such cave stables are not rare in Palestine ... The tradition of the birth in a cave was widely accepted, as we see from Origen's words about a century later."
This tradition of Jesus' birth in a cave makes the Gospel of Matthew's account of the visit of the Magi more significant. He writes how the Magi entered a "house," and not a "cave" to venerate the newborn king.
"They were overjoyed at seeing the star, and on entering the house they saw the child with Mary his mother. They prostrated themselves and did him homage." (Matthew 2:10-11)
Furthermore, it is generally believed that the Magi came between 1-3 years after Jesus' birth, making it more likely that the Holy Family returned to Nazareth, instead of staying in Bethlehem (where they traveled on account of the census). This also corresponds to the fact that King Herod slaughtered male children two years old and under.
The reason why the Italian city of Loreto is connected to this event is the local tradition that Mary's house in Nazareth was miraculously transported by angels to the city of Loreto.
It is a legend that has been accepted by many popes and saints over the centuries, though historians frequently debate the validity of such a claim.
Nevertheless, if all the stories about the Holy House in Loreto are true, there is a possibility that the Magi visited that same house when they came bearing gifts for the newborn king. In this way, not only is the Holy House affiliated with the Annunciation to Mary, it is also connected to Jesus' Nativity.
All of this combines to make the optional memorial of Our Lady of Loreto (instituted by Pope Francis) a perfect "Christmas" feast, one where many mysteries can be meditated on and pondered, just as Mary "kept all these things, reflecting on them in her heart" (Luke 2:19).
