Mortgage Rates and the Rising Recession Fears: Impacts on Home Sales
As the Federal Reserve approaches its upcoming meeting, experts anticipate a steady stance in interest rates. Melissa Cohn, regional vice president at William Raveis Mortgage, suggests, “the surprise could be in the latest dot plot of future rate expectations,” reflecting the Fed’s prior indication of potential rate cuts in 2025.
Cohn further comments that, “if the dot plot reveals expectations for more rate cuts than previously expected, it is possible that the bond market could rally and rates move down.” This speculation hints at a complex interplay between monetary policy and market performance.
Growing Concerns About a Recession
Recent trends in declining 10-year Treasury yields and a drop in 30-year mortgage rates are largely attributed to escalating concerns over a potential recession. A survey from CNBC indicates that market experts now assess the odds of a U.S. recession at 36%, a notable increase from 23% as reported in January. Concurrently, the GDP growth outlook for 2025 has diminished from an average of 2.4% to 1.7% among experts.
Marty Green, a principal at mortgage law firm Polunsky Beitel Green, articulates the uncertainty surrounding economic indicators: “The big unknown here is whether, at some point, the same economic uncertainty that is currently having a positive impact on interest rates will actually cause the U.S. economy to tip into recession.” He cautions that a recession, particularly one that results in significant job losses, could jeopardize any ongoing recovery in the housing market.
Meanwhile, Tom Egan, chief financial officer of Hometap, notes that mixed economic signals are prompting the Fed to remain cautious. He states, “while gross domestic product (GDP) and employment numbers are strong, volatile equity markets and lukewarm consumer sentiment” complicate forecasts regarding interest rates. Egan emphasizes the need for clarity amidst a backdrop of global conflicts and domestic economic policies.
Data from the U.S. Bureau of Labor Statistics reveals a slowdown in headline inflation, which reached 2.8% year-over-year in February, while core inflation remains above the Fed’s 2% target at a rate of 3.1%. The potential for rising prices due to tariffs imposed by the Trump administration against key trading partners raises additional concerns.
Implications for Homebuyers
As the spring home-buying season unfolds, Green observes that housing market activity appears to be more typical than in recent years, with inventory levels up and mortgage rates down. However, he echoes Egan’s concerns regarding the implications of government policies. “The combination of prospective government cuts and the disruptive impact of tariffs have made the mortgage bond market begin to price in additional cuts by the Fed later in 2025,” Green states.
The opening months of the year, however, have not been promising for home sales. The National Association of Realtors reported a 4.9% decrease in existing-home sales in January, adjusting to an annual rate of 4.08 million. New-home sales experienced an even steeper decline, dropping 10.5% to an annual rate of 657,000, raising alarms for homebuilders concerned about escalating material costs affected by tariffs.
CoreLogic Chief Economist Selma Hepp underscores the potential benefits of lower mortgage rates for the spring buying season but maintains uncertainty about the sustainability of this trend. “American households are increasingly concerned with potential re-inflation, their job security and financial outlook, which is holding them back from making major expenditures,” Hepp explains, as many continue to navigate the economic repercussions of rising housing costs.