Economic Activity and Labor Market Stability

The Federal Open Market Committee (FOMC) has recently noted ongoing expansion in economic activity, asserting that this growth remains robust. They highlighted a stable unemployment rate alongside solid labor market conditions, despite inflation persisting at relatively high levels.

Mortgage Rates and Demand Trends

This week saw a stabilization in mortgage rates, with the average 30-year conforming loan rate sitting approximately 30 basis points lower than at the year’s start, as reported by HousingWire’s Mortgage Rates Center. However, there has been a significant decline in mortgage demand, which decreased by 6.2% during the week ending March 14, according to data from the Mortgage Bankers Association (MBA).

Interest Rates and the Future Outlook

Logan Mohtashami, Lead Analyst at HousingWire, indicated that the discourse surrounding interest rates is set to intensify. Fed Chair Jerome Powell is striving to keep a distance from political pressures as governmental bodies advocate for reduced rates to stimulate economic activity.

“If the economy tumbles into a recession, the opinions of the White House or Federal Reserve will take a back seat — the real drivers will be falling bond yields and mortgage rates,” Mohtashami noted, emphasizing the Federal Reserve’s significant influence on these financial shifts.

Recession Risks and Housing Market Resilience

Odeta Kushi, Deputy Chief Economist at First American Financial Corp., raised concerns regarding the increasing risk of a recession but emphasized that not all downturns lead to declines in the housing market. “A recession alone doesn’t necessarily lead to a housing downturn,” she stated, adding that the specifics of each economic decline and the Federal Reserve’s response are pivotal.

As economies slow, the typical reaction from the Fed involves lowering interest rates to encourage growth, often leading to reduced mortgage rates, which can enhance affordability and boost home-buying power. Historical trends in past recessions have demonstrated that such rate cuts correlate with increased home sales.

Current Market Predictions

First American has also projected a 1% increase in existing-home sales for February compared to January, indicating a potential 4.7% increase year-over-year. This suggests optimism amid economic headwinds.

Insights from Real Estate Loan Providers

Real estate investment firms, including Kiavi—a San Francisco-based private lender—are carefully monitoring Federal Reserve policies to gauge borrower demand. “We expect some short-term volatility over the next six to nine months but anticipate the market will stabilize over the next 18 months as the Fed provides more clarity around its interest rate policy for the remainder of 2025,” stated Tim Lawlor, Kiavi’s Chief Financial Officer.

Lawlor also mentioned that rising costs of building materials, exacerbated by tariffs, along with a labor shortage in the construction sector, are influencing developers’ strategies. While some previously thriving markets like Texas and Florida are showing signs of cooling, regions in the Midwest and Northeast are reportedly faring better.

He cautioned real estate investors to remain vigilant, especially in markets showing an increase in the number of days homes stay on the market. “Real estate investing is based on a margin of safety: buy at the right price, have exit options, and stay in tune with local trends,” he advised.