April 29, 2025 – Reforecasting The Year

Economic Commentary

Every year we point out that forecasting the future is a futile exercise. Yet, we always publish these forecasts by the experts who are typically economists with major organizations such as Fannie Mae, the Mortgage Bankers Association, The National Association of Home Builders, etc. After all, they get paid the big bucks to tell us what is likely to happen.  And every year these forecasts are adjusted as the year progresses. Unless there is a cataclysmic event such as a pandemic or major weather event which causes significant economic damage. Then we might call these adjustments “reforecasts.”  In other words – “all bets are out the window.” This year we seem to be experiencing a similar phenomenon. However, it is not a major event causing the adjustments, but a major governmental policy – tariffs.

Ever since the self-proclaimed “Liberation Day,” the economists have been busy trying to figure out how the economy will react. But they have no clue because like the pandemic, there is little baseline for comparison. Plus, every day we seem to be hearing about either a new tariff or an exemption from tariffs or a pause of a tariff.  Plus, there are suits challenging tariffs. How can you forecast in these scenarios?  Higher inflation?  Maybe.  Slower growth?  Maybe.  More Fed interest rate cuts? Maybe. Yes, it is tough to predict the future. Even tougher when we don’t understand the present. It should be noted that we keep hearing the phrase “increased risk of recession,” being uttered by analysts.  Just a reminder that we heard that exact phrase two years ago and the predicted recession never surfaced.

Weekly Interest Rate Overview

The Markets. Mortgage rates continued to experience significant day-to-day volatility, but in the end, they have been moving within the same range. According to the Freddie Mac weekly survey, 30-year fixed rates decreased to 6.81% from 6.83% the week before. In addition, 15-year loans fell to 5.94%. A year ago, 30-year fixed rates averaged 7.17%, 0.36% higher than today. Attributed to Freddie Mac: “The average mortgage rate decreased slightly this week. Over the last couple of months, the 30-year fixed-rate mortgage has fluctuated less than 20 basis points, and this stability continues to bode well for buyers and sellers alike.” 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 number of first-time homebuyers in the market varies significantly depending on the source. Several key reports provide insights into FTHB activity, but they rely on different methodologies, which can yield widely different results. The National Association of Realtors (NAR) provides FTHB statistics in its annual Profile of Home Buyers and Sellers. NAR gathers first-time buyer data by surveying a random sample of recent home buyers, weighted by geographic distribution of sales, about their prior homeownership status. This year’s survey found the percentage of FTHBs hitting a historic low of 24% (down from 32% last year).  Intercontinental Exchange (ICE) gives us a different view. ICE reports that FTHBs made up 47% of all agency purchase mortgages in 2023. The FHA, the most popular government-backed program, tracks the number of FTHBs assisted by its programs via loan applications submitted by lenders. In these calculations, the FHA considers an individual an FTHB if he or she has not owned a primary residence within the past three years. If either spouse meets the criteria, the couple is considered a FTHB. In its 2024 annual report, the FHA reports serving more than 498,000 first-time homebuyers in 2023, totaling more than 82% of its mortgage purchase volume. The Urban Institute (UI), provides a comprehensive estimate of FTHBs by combining data from the Federal Housing Administration (FHA) and the Federal Housing Finance Agency (FHFA) to calculate the share of first-time homebuyers. UI reports that in October 2023, the FTHB share of FHA lending was 82%, and in September 2023, the GSE share of lending was 50.8%, and the VA share was 49.9%. Notably, the FTHB figures from ICE, FHA and UI are significantly higher than NAR’s finding of 24%. With a high percentage of buyers most likely being FTHBs, lenders will need to use every tool in their arsenal to educate and assist them toward sustainable homeownership, including partnering with local real estate agents and using down payment assistance programs.  Source: The Mortgage Bankers Association

The Housing Supply Frameworks Act—introduced in the Senate and House by a group of bi-partisan members–offers a framework for state and local governments to modernize outdated zoning and land-use regulations that hinder new housing development. “The rising cost of housing is putting the American dream out of reach for working families across our country,” said Rep. Flood in an April 10 announcement. “We need an all-of-the-above approach to addressing America’s housing crisis. To this end, the [HSFA] helps establish suggested best practices for state and local governments across the country [that] want to break down barriers holding back development and innovation in housing and construction.” The bill would not impose federal mandates. Instead, it would equip communities with expert guidance, technical assistance and best practices to enable smart, locally driven policy reforms that increase the housing supply across all income levels. “The National Association of REALTORS® is proud to support the Housing Supply Frameworks Act,” says NAR’s Executive Vice President and Chief Advocacy Officer Shannon McGahn. “This bipartisan legislation provides much-needed leadership and guidance to help communities overcome barriers to housing development. By encouraging smart, locally driven reforms, HSFA will play a vital role in addressing our nation’s housing shortage and help expand access to affordable homeownership and rental opportunities.” The bill has garnered support from over 140 housing and planning organizations, including the National Association of Home Builders, Habitat for Humanity, and the American Planning Association. Its introduction comes amid growing concern over the lack of affordable housing, with restrictive local zoning cited as one of the biggest impediments to boosting supply.  Source: NAR

Millennial buyers indicate they are prepared to compromise on space. According to a National Association of Home Builders (NAHB) survey, most millennial buyers would choose a smaller, feature-rich home for the same price—although they do want more square footage than prior generations. According to NAHB, when compared to previous generations, millennial buyers most frequently request a home with a median interior space of 2,408 square feet. A majority of millennial homebuyers (52%) state that they would prefer to buy a smaller home with better features and products than a larger one with fewer features. “Buyers are willing to make compromises to find the best possible home for their families,” said NAHB Chairman Buddy Hughes, “Our nation’s builders are willing to meet buyers where they are and construct a high-quality home to meet their family’s needs.” Builders are building smaller homes, according to U.S. Census Bureau data. After remaining stable at 2,300 square feet from 2019–2022, the median home size fell from 2,200 square feet in 2023 to 2,150 square feet in 2024, the lowest level in 15 years. Builders are adding patios and porches on the outside of homes to expand the entire living area. In order to assist families in becoming homeowners, builders are making some compromises in light of the current housing affordability situation. Nearly a third (29%) of builders lowered home prices in March, up from 26% in February, according to the most recent NAHB/Wells Fargo Housing Market Index. Similar to February, about 59% of builders used sales incentives in March.  Source: NAMB