April 1, 2025 – April Fools

Economic Commentary

A few weeks ago, we wrote that there did not seem to be a major market reaction to the new policies of the Administration. But as time has gone on and more tariffs have been implemented — and even more scheduled, the stock market has reacted significantly with increased volatility – mostly on the downside.  There has also been a string of economic reports suggesting that the economy is slowing down. All of this leads us to a series of questions.

First, is the stock market overreacting? We have had plenty of dips in the last several years and it seems like the stock market always comes roaring back. Of course, the past never guarantees the future, so we shall see. One factor which might give us a determination of whether stocks will rebound is the state of the economy. If there is further deterioration of the economic climate, this may make it much harder for a quick rebound.  

Which brings us to the second question—how slow will the economy become?  A hint might be coming this week, as the jobs report for March is scheduled to be released. Bear in mind that we have had major layoffs within the Federal Government, and these layoffs may well affect the numbers for this report, though it still may be too early to see this cause and effect.  Finally, if the economy is slowing, why are interest rates not falling more quickly?  For now, the fear is that tariffs are not only causing economic uncertainty, but also higher inflation.  Again, we have not seen evidence of inflation heating up yet, but for now the markets are trading on fear.

Weekly Interest Rate Overview

The Markets. The Freddie Mac rate survey continued to be stable in the past week, though there was much volatility day-to-day. According to the survey, 30-year fixed rates decreased slightly to 6.65% from 6.67% the week before. In addition, 15-year loans rose to 5.89%. A year ago, 30-year fixed rates averaged 6.79%, slightly higher than today. Attributed to Freddie Mac: “The 30-year fixed-rate mortgage ticked down by two basis points this week. Recent mortgage rate stability continues to benefit potential buyers this spring, as reflected in the uptick in purchase applications.” Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Real Estate News

Nearly one in three renters admit to delaying a home purchase because of misgivings about the mortgage process. Americans are confused about mortgages and many other financial aspects of homeownership, according to a new survey of about 1,000 prospective buyers and homeowners conducted by JW Surety Bonds. One in three renters say their lack of knowledge about homeownership has caused them to delay a home purchase, while homeowners admit to making some costly mistakes in the homebuying process because of a low homeownership IQ.  “It’s clear that improved education and resources could help foster Americans’ homeownership success,” researchers noted. “As the housing market continues to change, so must our approach to homeownership literacy.”  Aside from confusion about mortgages, home buyers also appear to misunderstand the added costs involved when buying a home, such as closing costs and property maintenance. The JW Surety Bonds survey uncovered the following consumer knowledge gaps about homeownership: buyers are unaware of real estate terms, not knowing how to shop for a mortgage, not budgeting for hidden homeownership expenses and not paying attention to home affordability. Some prospective home buyers are on the lookout for more answers and guidance on the homebuying process. NAR has many Consumer Guides covering various aspects of the process, from written buyer agreements to home inspections and appraisals, at facts.realtor.  Source: Realtor Magazine

Amid growing chances of the U.S. plunging into a recession this year, housing experts have reassured American homeowners that the value of their properties will not crash even in the face of a major economic downturn. Two consecutive quarters of negative real gross domestic product are often considered a recession, which is characterized by a widespread decline in economic activity. While a recession could cool the U.S. housing market, which is in the midst of an affordability crunch, a new report by the real estate brokerage Redfin said it would not lead to a crash, as most homeowners sitting on low mortgages and high-value properties are unlikely to be forced to sell.  “The housing market is relatively insulated from a downturn,” Redfin economist Chen Zhao said in a report. She added that most homeowners “are sitting on high levels of equity” and have likely locked down relatively low mortgage payments before rates skyrocketed following the Federal Reserve’s aggressive rate-hiking campaign to combat inflation. “Higher-income homeowners are less likely to lose their jobs and most homeowners aren’t very leveraged, because they’ve locked in ultra-low mortgage rates,” Zhao continued.  While mortgage delinquency may rise, according to the Redfin economist, it will not “necessarily spike.” Because U.S. homes have appreciated so much over the past few years, even homeowners who may find themselves underwater will be motivated to continue paying their mortgages to keep hold of their properties. This is a different situation from the one that led to the housing crash of 2008. The most vulnerable homeowners are those who bought their homes recently with high prices and high rates, Zhao said.  “But even then, if rates drop enough, these individuals could refinance and see their monthly payment shrink considerably,” the economist wrote.  Source: Newsweek

Since the pandemic, many consumers are using their homes in new and different ways — including living with multiple family members under one roof, expanding outdoor living spaces, and even growing some of their own food. With the rise in home prices over the last few years, changes in consumers’ desires have played a role in driving demand for the limited number of homes available on the market. In our latest National Housing Survey® analysis, we explored how consumers’ perceptions of the overall value of their home have changed based on new needs and utilization, and how changing needs might impact future homebuying decisions.  Almost half of consumers say their home has become more important to them over the past few years, compared to just 10% who say their home has become less important to them.  More than half of consumers say they have made functional changes to how they use their home in the last few years. These changes include using the home as a gym or for hobbies, growing food or gardening, and working from home. Far more consumers (44%) say their homes are more important today than a few years ago, compared to just 10% who say their home is now less important.  This sentiment could reflect the fact that many consumers might not have been able to afford their current home in today’s market. Notably, homeowners (48%) are somewhat more likely than renters (38%) to say their home has become more important to them. Among the general population, 63% cited location as the top reason homes have grown more important in recent years. Not far behind is the “sense of security a home offers in uncertain times” (59%). Notably, both location and security are far more important to homeowners (69% and 61%, respectively) than renters (50% and 42%).  Source: Fannie Mae