August 20, 2025 – Shooting The Messenger

Economic Commentary

One week after discussing the importance of the Chairman of the Federal Reserve’s tenuous position, the economy received somewhat of an “aftershock.”   Rarely do we use the word aftershock when discussing the economy. It is quite often that we are subjected to economic shocks, many of which are surprises such as natural disasters, pandemics and more.  But aftershocks are more reserved for earthquake activity – not economic shocks.

The last jobs report was quite shocking.  Not the increase of just over 70,000 jobs in July. This was a weak number, but certainly not out of the question. On the other hand, the downward revision of the previous two months of data by a whopping 258,000 jobs was downright shocking.  This revision single handily turned a moderately strong jobs market into a market which is gasping for air.  Then here came the after-shock – the head statistician was fired.  We will not get into the reasons why, but certainly such a revision called for an explanation.  In essence, the messenger was shot.

Again, we will not debate the pros and cons of shooting the messenger.  But we will return to the question of the day. If this revision was indeed accurate and the Fed had access to the data when they met, they were much more likely to lower short term rates last month. Unfortunately, the data came in a few days after the meeting.  Last week the consumer inflation report came in up 0.2% monthly and 2.7% annually, but a bit higher at the core level excluding food and energy.  At the wholesale level, the numbers were much higher than expected, which does not bode well for future consumer inflation readings. Overall, the markets are betting on an interest rate decrease at the next Fed meeting in September.  However, these new inflation numbers complicate the issue of future Fed moves.

Weekly Interest Rate Overview

The Markets. Mortgage rates continued to ease in reaction to the weak jobs data. However, they did increase a bit after a sharp increase in producer prices was announced late last week.  According to the Freddie Mac weekly survey, 30-year fixed rates eased to 6.58% from 6.63% the previous week. In addition, 15-year loans decreased to 5.71%. A year ago, 30-year fixed rates averaged 6.67%, slightly higher than today. Attributed to Freddie Mac: “Mortgage rates fell to their lowest level since October of last year. Purchase application activity is improving as borrowers take advantage of the decline in mortgage rates.” 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

Did you know there are more households with pets than children? And these beloved pets are a driver of economic activity, namely, home buying. About one-fifth of recent home buyers considered their pet when choosing a neighborhood, a share that increases among unmarried couples and single women buyers. Let’s dive in!  According to the U.S. Census, the share of families with children under the age of 18 living in their home has continued to decline. The share of families with children under the age of 18 in 2024 stood at 39%, down from 52% in 1950. This is likely due to two reasons: Birth rates, overall, have been declining, and a large share of baby boomer households have already seen their children leave the nest.   This trend is also reflected among home buyers. In 1985, 58% of home buyers had children under the age of 18 in their homes. In 2024, just 27% of home buyers had a child under the age of 18 in their home. This is an all-time record low.  While the number of children in U.S. households has declined in the last 20 years, there has been a rise in pet ownership. According to the American Pet Products Association, 71% of American households own a pet. This is up from 56% in 1988.   Given the increasing share of pets in households and the growing time and resources devoted to them, it is no surprise that many home buyers consider their pets the most important factor when making homebuying decisions. Factors such as proximity to a veterinarian and outdoor space for pets are important considerations for buyers with pets. Among all unmarried couples, 24% of home buyers considered their pet when deciding on a neighborhood in which to purchase, compared to 15% of married couples. Seventeen percent of single women considered factoring their pet into their neighborhood choice, compared to 12% of single men.   Source: National Association of Realtors

Homebuyers across the US face a growing income gap when choosing between new and existing homes, with new construction now costing 37.5% more on average, according to recent findings from LendingTree.  National median figures show new homes priced at $537,791, while existing homes average $391,210 — a difference of $146,581. To afford the higher cost, households would need an annual income of $166,273 for a new home, compared to $120,159 for an existing property. The price spread varies widely by state.  Matt Schulz, chief consumer finance analyst at LendingTree, said demand plays a role, with many buyers willing to pay more for newly built properties. Other factors include higher costs for materials, labor, land, and permitting.  The data points to an uneven housing landscape where new construction can either strain or ease affordability depending on location. Regional policies, supply constraints, and buyer demand continue to influence pricing and income requirements, shaping purchasing decisions across state lines.   Source: Mortgage Professional America

Tax-deferred retirement accounts are a necessary source of income for seniors looking to age in place. But it can be confusing to navigate the options for taking the required minimum distributions (RMDs) from the account as mandated by the IRS — especially given the tax implications. What’s the best approach for seniors as they plan for retirement? Derek Horstmeyer, a finance professor at George Mason University, gamed out three different but common strategies on RMDs in a column published by The Wall Street Journal. The first is to take out a lump sum at the end of each year. The second is to space out equal distributions every month. The third is a mix of these two strategies, where half of the money is pulled out at the end of the year and the other half is dispersed throughout the year in equal installments. Horstmeyer and his researchers ran three simulations for each strategy using different levels of volatility in the financial markets. They found that the best strategy for investors is to take out equal installments every month, although a lump sum might make sense if an individual’s risk tolerance is high in a low-volatility market environment. But this conclusion comes with caveats. The higher the average tax rate is, the more a hybrid strategy worked best, because holding the money in a retirement account for longer means that taxes can be avoided for as long as possible. Horstmeyer found the results surprising because so many individuals prefer the lump-sum method, as they believe that delayed distributions allows them to benefit from all market gains in any given year. But volatility in the market is key. The more volatility, the more it makes sense to spread out the distributions in installments. A downturn in the market can lead to huge disruptions in retirement planning. Source: The Wall Street Journal