Is recession risk driving lower mortgage rates now? by Logan Mohtashami for HousingWire

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Did President Trump warn about a recession in his weekend interview with Fox News, or was it more about throwing caution to the wind due to his big policy changes? There’s been a buzz on social media, with many speculating that he could be steering us toward a recession due to his ambitious plans on tariffs and cuts to government jobs and spending. I have my own recession indicators which haven’t flagged a labor trigger yet, but let’s dive into this topic more. 

I’ve talked about the economic effects of Trump’s policies a lot over the last few months. The vibe coming from the White House has been a push for lower mortgage rates — after all, Trump’s policies have the potential to create quite a stir in the market.

This situation feels reminiscent of Trump’s first term when stock prices took a hit in 2018-2019. Back then, Trump frequently sent people out to reassure the media that everything was under control, even amid the chaos of the trade war. I have delved into this topic in several recent episodes of the HousingWire Daily podcast, and honestly, what’s unfolding right now seems pretty par for the course for Trump and his unique approach to leadership. We didn’t see a recession in 2018 or 2019 and right now, the bond market to me isn’t saying we are going into one.

Let’s look at the bond market

This Monday morning, we’re observing the 10-year yield at 4.22%, pulling back from its year-to-date peak of 4.79% that we saw on Jan. 14. It’s an intriguing time in the bond market — while some might expect signs of a recession, I don’t think we’re there yet. Ever since 2022, we’ve witnessed a pattern of growth scares followed by lower interest rates.

If the 10-year yield trades below 3.80%, it would indicate that the market is anticipating significant economic weakness in 2025. However, we are not at that point yet. Last year, the 10-year yield dropped as low as 3.63% as labor data began to weaken, leading many to believe the Federal Reserve was falling behind and needed to implement further rate cuts.

Afterward, we experienced a few months of stronger economic data, which resulted in rising bond yields. For the 10-year yield to go below 3.80% now, we would need to see much weaker labor economic data. Many people are interpreting President Trump’s interview as saying that he doesn’t know whether we’ll go into a recession, which is why the market is acting like it is today.

In short, while the bond market isn’t signaling alarm bells yet, it’s a space worth watching closely.

Follow the labor data 

In today’s podcast, Editor in Chief Sarah Wheeler and I delved into the recently released jobs report from Friday, exploring its implications and what we’re especially interested in as we gear up for 2025. Join us as we unpack these insights and share our perspectives on the economy’s future — it’s a conversation you won’t want to miss!

I also penned some thoughts on the jobs report, zooming in on specific data points that shed light on the real risks of a recession.

In relation to a potential drop in mortgage rates, I’ve been closely monitoring labor trends since 2022. For mortgage rates to fall below 6% — or even approach that level — the bond market must anticipate a weakening economy. Furthermore, if the labor market deteriorates, the Federal Reserve is likely to reduce interest rates. In this scenario, mortgage rates would remain lower for a longer period of time which will help with housing demand.  

Conclusion

The financial markets are buzzing with activity and there’s quite a bit of headline noise to sift through — it’s been a while since we’ve seen the stock market this restless. While the economic data seems to hint at a looming recession, the bond market tells a different story —at least for now. However, mortgage rates are heading lower once again and this is something the White House economic team wants. 

Imagine if the 10-year yield dipped below 3.80% today; that would completely change our discussion about what the bond market is signaling. But as it stands, we haven’t reached that point yet. Historically, we’ve seen the bond market slide significantly due to recession concerns, only to bounce back stronger than before. 

So, while we’re not at the recession labor trigger stage just yet, it’s crucial to keep a close watch on all the labor data that’s coming our way. This week, we’ll get one of the key indicators from the Federal Reserve: job openings. Plus, inflation reports are on the horizon! Let’s stay tuned and see how this unfolds — it’s going to be interesting!

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