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Today on CNBC, I discussed the state of the U.S. housing market, highlighting some key points that have been part of my work recently about tariffs, mortgage rates, White House housing policy, and how the new FHFA director could help lower mortgage rates in the short term.
Key points
1. Tariffs can hurt the homebuilders’ profit margins, which is one reason the White House wants lower rates. The headline of the CNBC segment: “The cure for tariffs is lower mortgage rates” captures the essence of the situation. If the White House intends to pursue tariffs, it would be beneficial to lower mortgage rates as a way to alleviate some of the initial challenges arising from those tariffs.
CNBC asked why the homebuilders confidence has soured so much lately, which is evident in the chart below. It’s simply rising rates, and tariffs will impact their profit margin. The builders are dealing with margin pressure going into the year, so the cure for tariffs is lower mortgage rates.
2. Mortgage rates are trending lower, which reflect the policy priorities of the White House and the Trump economic team. This result of this decline in mortgage rates compared to last year can be seen in the year-to-date data for purchase applications and today’s report on existing home sales.
3. A 1980’s housing cocktail. During my discussion on CNBC, I highlighted that the current housing market shares similarities with the housing market in the 1980s. In that era, we faced more significant challenges regarding affordability, experienced a downturn in sales and had higher inventory levels than we see today. Interestingly, the recession at that time brought about a reduction in interest rates, which paved the way for a remarkable increase in home sales.
The Federal Reserve’s role
Regarding the Federal Reserve meeting and my interview with CNBC, I noted that the ongoing economic uncertainty has sent the 10-year yield lower, thus bringing down mortgage rates. In fact, CNBC quoted me on this very thing: “Any uncertainty in the economy and economic growth slowing down is actually beneficial for housing as the 10-year yield falls,” says HousingWire’s Logan Mohtashami.
The Federal Reserve meeting on Wednesday highlighted the importance of the discussion on tariffs and inflation. As economic uncertainty increased, the Fed raised its unemployment rate prediction, which led to a decline in the bond market and lower mortgage rates. For someone who believes labor is more important than inflation, yesterday’s Fed meeting and the bond market reaction says that even though the Fed raised it’s inflation forecast, the bond market gave more.
I talked about this at length on today’s episode of the HousingWire Daily podcast. I encourage everyone to listen to this interview because it explains why bond yields fell so much after the Fed’s meeting and continued to fall all night and into the morning.
How the existing home sales report fits
How does the existing home sales report reflect the discussion above? Well, it was a surprising beat of the estimates, especially considering that the previous pending home sales data was at an all-time low. Tracking existing home sales with purchase application data has been challenging for some. I believe there is a weather-related gap in sales reflected in this report, meaning that there was a delay in sales that ultimately showed up here.
From NAR: Total existing-home sales – completed transactions that include single-family homes, townhomes, condominiums and co-ops – progressed 4.2% from January to a seasonally adjusted annual rate of 4.26 million in February. Year-over-year, sales slid 1.2% (down from 4.31 million in February 2024).
In tomorrow’s podcast episode, I’ll dive deep into some fascinating insights that no one is discussing right now with the existing home sales report. Here’s a preview: the purchase application data is looking incredibly positive! This weekly data is encouraging and shows year-over-year growth has been here for most of the year. I haven’t been able to say that in years!
It’s no wonder the White House is pushing for lower mortgage rates. People are eager to buy homes and move, and with mortgage rates inching toward 6%, that goal is becoming more achievable. Don’t miss out on the full details — tune in tomorrow.
