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There was no surprise on Wednesday as the Federal Open Market Committee (FOMC) chose to leave the federal funds rate unchanged at a range of 4.25% to 4.5%. The decision was almost universally expected by market observers as the Federal Reserve weighs data that could be pushing the U.S. toward a recession.
The short-term direction of mortgage rates — which are more closely tied to Treasury yields than benchmark interest rates — remain uncertain. Rates have consistently decreased over the past two months, coinciding with President Donald Trump’s return to the White House. But economists and policymakers are closely watching inflation data and unemployment reports while analyzing Trump’s numerous tariffs to see where the U.S. economy is headed.
“Recent indicators suggest that economic activity has continued to expand at a solid pace,” the FOMC said in a statement announcing its decision. “The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated.”
Mortgage rates leveled off this week, although the average 30-year conforming loan is priced about 30 basis points lower than it was at the start of the year, according to HousingWire’s Mortgage Rates Center. Mortgage demand declined by 6.2% during the week ending March 14, according to data released Wednesday by the Mortgage Bankers Association (MBA).
HousingWire Lead Analyst Logan Mohtashami said earlier this month that the battle over interest rates is likely to heat up. Fed Chair Jerome Powell has sought to distance himself and other policymakers from political pressure as White House and Treasury officials push for lower rates to spur 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 wrote. “However, just how much they drop is mainly in the hands of the Fed, which controls about 65% to 75% of the shifts in the 10-year yield and mortgage rates.”
Odeta Kushi, deputy chief economist at First American Financial Corp., also acknowledged the rising risk of a recession. But she pumped the brakes on what a recession could mean for the housing market.
“A recession alone doesn’t necessarily lead to a housing downturn. The housing market’s performance depends on the causes of the recession and how the Fed responds,” Kushi said in written commentary.
“When the economy slows, the Fed typically lowers interest rates to stimulate growth. As a result, mortgage rates often decline, improving affordability and boosting house-buying power. This dynamic was clear in past recessions where rate cuts encouraged home sales. Even amid economic uncertainty, lower borrowing costs can make homeownership more attractive, offsetting some of the recession’s negative effects.”
First American predicted this week that existing-home sales for February would rise 1% from the prior month, which would also represent a 4.7% year-over-year increase.
Mortgage companies like Kiavi, a San Francisco-based private lender that caters to real estate investors, have their eyes on Fed policy as they attempt 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,” Tim Lawlor, Kiavi’s chief financial officer, told HousingWire in written commentary.
Lawlor went on to note that tariff-driven increases in the costs of building materials, as well as the ongoing construction industry labor shortage, are impacting the strategies of real estate developers. While housing markets in previous hotbeds like Texas and Florida “are starting to soften,” he said, others in the Midwest and Northeast are performing relatively well.
“Real estate investors should also be cautious of the markets showcasing increasing days on the market for home sales. 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.”
Editor’s note: This is a developing story and will be updated.
