April 22, 2025 – Will They – Or Won’t They?

Economic Commentary

The initial reaction to the tariff wars has been a major retrenchment in the stock markets and extreme volatility for bonds as well. With many analysts using the word recession repeatedly, an important question has arisen — should the Federal Reserve step in and implement an “emergency” rate cut.”  We say “emergency” because there is no regularly scheduled meeting of the Fed’s Open Market Committee until early May.

Indeed, a meeting took place less than a week after the sweeping tariff announcement was made. However, despite analysts expecting this action, the Fed opted to wait until more clarity arises from this policy initiative. Still, a sharp rate decrease is forecasted by many for their next scheduled meeting. So, will they — or won’t they?  We understand that the Fed is focused upon the long-term effects of tariffs. For example, what if the tariff initiative leads to negotiations which then lead to the removal of many of the tariffs in the upcoming weeks?

On the other hand, what if the tariffs stay implemented and this leads to a recession and rising inflation? This phenomenon is otherwise known as stagflation. As of now, the Fed’s overriding goal is to contain inflation. But if a recession hits, the war against inflation could take a back seat.  Remember that long-term interest rates don’t always follow the direction of the Fed’s control of short-term interest rates. If they act too impetuously to lower the Federal Funds Rate while inflation is rising, long-term rates could rise. Conversely, if they hold off, long-term rates such as mortgages could fall independent of Fed action.

Weekly Interest Rate Overview

The Markets. According to the Freddie Mac Mortgage Rate Survey, rates increased sharply last week; however, the majority of this increase was experienced the previous week, with rates on a downtrend toward the end of the survey period. According to the survey, 30-year fixed rates increased to 6.83% from 6.62% the week before. In addition, 15-year loans rose to 6.01%. A year ago, 30-year fixed rates averaged 7.1%, higher than today. Attributed to Freddie Mac: “The 30-year fixed-rate mortgage ticked up but remains below the 7% threshold for the thirteenth consecutive week. At this time last year, rates reached 7.1% while purchase application demand was 13% lower than it is today, a clear sign that this year’s spring homebuying season is off to a stronger start.” 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

The initial reaction to the implementation of tariffs has been lower mortgage rates. By talking with industry professionals, MarketWatch researched the question – what happens to the real estate market if rates continue to fall?   Dips in mortgage rates, even short ones, encourage home sales. “If mortgage rates stay about the same as forecasted, we will see the normal seasonal increase in home sales. Another factor in home sales is inventory. The more houses that are for sale, the more sales we see. Inventory has been rising and will continue to rise in April [and] increased inventory should keep prices from rising dramatically,” says Holden Lewis of Nerd Wallet.  That said, even a slight drop in rates will bring more buyers to the market. “There are consistent signs that more supply is also reaching the market. This is good for buyers and sellers to see a deeper and wider market,” says Lawrence Yun, chief economist of the NAR.  Even during a traditionally busier spring home-buying season, McBride predicts that high mortgage rates will continue to keep home sales at a subdued level. “It would take a lot of movement in mortgage rates to move the needle on the housing market,” says Greg McBride, chief financial analyst at BankRate. Still, prospective home buyers and especially first-time buyers are experiencing affordability strain due to high home prices and high mortgage rates. “For those that haven’t been priced out, the slower pace of home sales means a better selection of homes to choose from and perhaps some bargaining power,” says McBride. For home buyers, weighing more options or a greater discount is something Kara Ng, chief economist at Zillow, likens to trying to buy clothes. “You can shop at the start of the season for the best selection in styles and sizes, but if you don’t mind waiting until the end of the season, you get deep discounts if there’s anything left in your size,” says Ng. Source: MarketWatch

J.D. Power indicated that 90% of homebuyers want their lender to walk them through the entire borrowing process. “Borrowers are looking for more individual interaction from their lender throughout the process,” Bruce Gehrke, senior director of lending intelligence at J.D. Power, told National Mortgage Professional. “The preference for purely digital lending is declining. Borrowers are looking for a more advisory experience driven by lender expertise delivered through live representatives.” The percentage of borrowers who think that in “a perfect lending environment” they should “always talk with a lender representative in person” has increased by 33%, to 61% of all borrowers. “For new borrowers,” Gehrke said, “we have also seen the preference for engaging with lenders earlier in the buying process — that is, when they first consider buying a home versus when they have found one and are looking for a mortgage loan — increase from 35% to 42% in the past three years.”   J.D. Power’s consumer data supports this higher / earlier engagement trend, Gehrke explained: “The percentage of borrowers who expect the lender to walk them through every aspect of the borrowing process has risen to 90%, up from 84% two years ago.” Meanwhile, “the percentage of borrowers who [say they] would prefer a totally digital experience has dropped 16% over the past two years to 43% — even considering lenders offering the perfect combination of digital tools,” he emphasized. Source: NMP

According to a recent Realtor.com survey, the average down payment in the fourth quarter was $30,250, which was around $3,000 more than the previous year but only somewhat less than the third quarter’s amount. The largest down payments in the history of the records, both in terms of total dollars and as a percentage of the buying price, occurred last year. In the fourth quarter of 2024, down payments were 3.4 percentage points greater than they were prior to the pandemic (2019 Q4), highlighting the trend toward larger down payments. “As inventory recovers, the housing market is very slowly tilting toward more balance between buyers and sellers. But down payments are still high—hitting an annual record in 2024,” said Danielle Hale, Chief Economist at Realtor.com. “Today’s home sales are skewed toward higher-end homes, and this means larger down payments from more financially prepared, high-earning buyers as entry-level and lower-earning buyers sit out. Additionally, higher mortgage rates give homebuyers good reason to limit their loan size and interest costs, by putting more down upfront.” Savings from the pandemic have been used by homebuyers to support higher down payments and consumer expenditure. Consumers saved 6.5% of their disposable income in the three years prior to the pandemic, but during the pandemic, that percentage jumped to over 30% and remained above the pre-pandemic average for more than 20 months. The median sale price and median down payment amount have increased as a result of rising housing activity in the high-priced segment and declining activity in the lower-priced sectors. While fewer homes sold for less than $750,000 in 2024 than in 2023 (down 9.3%), sales of homes in the $750,000+ price range increased by 7.4%. Source: NAR