As we enter the final month of Q1, there have been a lot of changes when it comes to markets and the overall landscape in the United States. Anytime there is an administration change, there is a period of time where new policies are being enacted and old policies are being removed. This causes volatility in markets, and in 2025, this volatility is heightened because of the size and speed at which these changes are being made.
Newly appointed Treasury Secretary Scott Bessent spoke on CNBC and explained that markets and the economy have become hooked and addicted to government spending. He said there is going to be a detox period and that the economy the new administration inherited is starting to roll a bit. It sounds like he expected a little bit of a slowdown, but he made it very clear that the economy will not be “their” economy for at least 6 to 12 months. He also made sure to address that tariffs are a one-time price adjustment and pointed to the dropping of oil prices and mortgage rates.
Speaking of tariffs, the newly imposed tariffs continue to make national news and have been a staple of the Trump administration’s playbook. Most of the media has been fixated on the instant impact or immediate ramifications of tariffs, but what doesn’t get much attention is the duration of these tariffs. For example, if you impose a 25% tariff today, and then tomorrow remove the tariff, does it really have a major impact on the economy? One day of anything isn’t likely to impact the economy, and if we go even deeper on this topic—what happens when long-standing tariffs are removed?
Imagine if a tariff is in place for a year, unemployment goes up, markets and companies evolve to deal with the tariffs, and the economy stabilizes back to a normal level of unemployment. Then the tariff is removed… What happens? You’d expect to see job creation and even lower unemployment than you started with. Can tariffs act as a reset button economically? Can tariffs be leveraged to create a better arrangement for the side that is impacted the least by the tariff? These are all questions that you could play out in theory, but until it happens in real life, you won’t know the final answer.
Speaking of unemployment and job creation, the BLS report was released showing 151,000 jobs were created in February. The BLS has been under fire for over a year since their findings are based on a predictive model, not actual data. Part of this model is a birth/death model that is used to help normalize the figures. In the most recent report, 136,000 of the 151,000 jobs were added due to this model, and without it, the employment picture looks much different. The U-6 unemployment rate, which adds everyone back in and is more indicative of real unemployment, surged from 7.5% to 8.0%, the highest level since October 2021.
When we look closer at the jobs report, we saw 588,000 in job losses, which is weak, but if you pull the curtain back further, it looks even worse. There were 1.2M full-time job losses but 610,000 part-time job gains, showing that the “good” jobs are going away in favor of lower-paying part-time jobs. Taking it one step further, a majority of these part-time gains were from people aged 16 to 19 years old. Clearly, everyone is looking at this report, including the administration and the Fed.
This most recent data release applies more pressure for the Fed to cut rates as early as May, and markets are now pricing in three rate cuts in 2025. Housing inventory is still extremely low compared to the pre-pandemic levels that were considered normal, while demand for homes has remained high. We’re still seeing multiple offers on most properties, and with the prospect of lower interest rates coming over the next year, we expect this trend to continue.
We still believe that housing is one of the greatest ways to build wealth in America, and that housing should remain strong with a 4.5% to 5% appreciation forecast in 2025. We also understand that every client’s situation is unique, and we’re more than happy to have a private consultation with you, your friends, or your family anytime. Always feel free to reach out if we can be of service, provide advice, or make connections for anything real estate related.
