May 13, 2025 – The Fed Speaks

Economic Commentary

The Federal Reserve’s Open Market Committee had not met for almost two months, but the Fed has sure stayed in the headlines. Whether giving a speech or testifying before Congress, Fed Chairman Powell has been quite adamant regarding the Fed’s “wait and see” attitude concerning the implementation of the new Administration’s policies. This is especially true with regard to tariffs, which give Powell concerns about the potential of reigniting inflation at a time at which the Fed should be coming close to completing their war on inflation.

From the Administration’s standpoint, they have not held back their concern with the Fed not continuing with their strategy of reducing short-term interest rates.  This clash has gotten so contentious at times that the markets have exploded with volatility because of concerns that the Fed would not maintain their independence. That very volatile reaction caused the rhetoric to quiet down, at least for now.  So, what did the Fed do last week? As expected by most they kept short-term rates unchanged.

Even more importantly, what did the Fed say about the economy and the future of inflation and interest rates? The Fed continued to talk along similar lines as they echoed their “wait and see” attitude.  Overall, they do see signs of the economy slowing, which ordinarily would be good news on the inflation front. Unfortunately, as long as elevated tariffs are part of the equation, according to the Fed, inflation is not likely to move lower with the slower economy, at least in the very near future.

Weekly Interest Rate Overview

The Markets. Mortgage rates continued to remain within the same range as the past several weeks. The Fed’s decision to hold rates steady was expected, especially after the moderately strong jobs report. According to the Freddie Mac weekly survey, 30-year fixed rates remained at 6.76%. In addition, 15-year loans fell to 5.89%. A year ago, 30-year fixed rates averaged 7.09%, 0.33% higher than today. Attributed to Freddie Mac: “Mortgage rates stayed flat this week. At this time last year, the 30-year fixed-rate mortgage was 30 basis points higher and purchase applications were declining. Today, rates are lower and have remained stable for weeks, sparking continued increases 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

The median U.S. asking price fell 0.6% year-over-year to $1,610 in March and rose 0.4% month-over-month—according to a new report from Redfin. Asking rents have stabilized below their 2022 record high of $1,705, and March marked the 13th consecutive month in which asking rents barely decreased or increased, with a year-over-year change of less than 1% during each of those months. Redfin economists have been saying for months that it’s only a matter of time before rents tick up again, as apartment construction slows. This will likely motivate landlords to raise rents due to a lack of supply, meaning they will not be competing as fiercely for tenants. Redfin economists also feel that tariffs imposed by the Administration will have an impact on housing moving forward. “America gets a lot of building materials from other countries, so tariffs will make building apartments more expensive. That could further hamper apartment supply, causing rents to jump,” said Redfin Economics Research Lead Chen Zhao. “Tariffs could also drive-up rents by increasing demand. People may opt to rent instead of buy homes because the turmoil around tariffs has fueled widespread economic uncertainty. Tariffs have already caused huge swings in the stock market, and they will lead to higher prices for many goods and services, along with increased unemployment.”  Source: Redfin

ATTOM released its first-quarter 2025 U.S. Home Sales report, finding that homeowners on average made a 50.2% profit selling single-family homes and condos in the first quarter. That’s down 3.2 percentage points from Q4 2024 and down 4.8 percentage points year-over-year. While the national median profit margin for home sales has been declining pretty consistently over the past three years, it still remains well above pre-pandemic levels. The national median home sale price has been flat over the past two quarters at $355,000. However, the median raw profit that sellers made on their homes dropped about 4% from about $124,000 in Q4 2024 to $119,000 in Q1. “Sellers may not be enjoying quite the same windfall they were a few years ago but by historical standards profits are strong, both in terms of margins and raw dollar value,” said Rob Barber, CEO for ATTOM. “The first quarter also tends to be the weakest of the year, so don’t be surprised to see profits regain ground during the summer months.” Home sales following foreclosures by banks and other lenders were 1.5% of all home sales nationally in Q1, up slightly from 1.3% in Q4 and Q3. That’s also well below the high of 30.1% hit in 2009. All-cash transactions were 42% of home sales in Q1, up from 38.3% in Q4. That’s the highest proportion of all-cash sales since 2014. Homes sold by institutional investors were 6.3%, up from 6.1% in the prior quarter and 8.3% of purchases in the quarter were made using FHA loans, down from 8.6% both in Q4 and in Q1 2024.  Source: ATTOM

According to a recent analysis by Realtor.com, the U.S. is experiencing a scarcity of around four million houses as a result of more than ten years of underbuilding. This ongoing supply deficit is making homeownership more and more unaffordable for millions of Americans as rents and property prices push budgets to their limits. Realtor.com is launching “Let America Build,” a nationwide campaign that promotes solutions that increase the supply of housing, to address one of the largest obstacles to affordability. Although recent improvements in construction demonstrate progress, they also underscore the pressing need for decisive legislative action. According to a recent analysis by Realtor.com, a rise in single- and multi-family building drove home completions to reach 1.6 million in 2024, the greatest level in almost 20 years. Household formations were surpassed by new construction activity for the first time since 2016. However, there is still a 3.8 million house shortage in the country, which is the third-largest yearly gap since 2012, after 2020 and 2023. With the South catching up in three years, the West in 6.5 years, the Midwest in an astounding 41 years, and the Northeast making little to no progress, bridging the deficit at the 2024 pace would take 7.5 years.  “While builders made strides last year, the scale of the historic housing shortage, paired with strong pent-up demand, meant that new supply couldn’t fully close the nearly 4 million-home gap,” said Danielle Hale, Chief Economist for Realtor.com. “Young households are particularly feeling the strain, as buying a home on an early- to mid-career salary is increasingly out of reach for many. Though a rise in both multi- and single-family construction offered some relief amid low existing inventory, addressing the gap will take sustained effort and smart policy.”  Source: Realtor.com