As we wrap up the first month of 2025, it has been nothing short of a whirlwind.
As President Trump’s Administration took office, they came out swinging—signing executive order after executive order, fast-tracking confirmation hearings, threatening to impose tariffs, and even changing the name of the “Gulf of Mexico” to the “Gulf of America.”
While our commentary is not political, we unfortunately live in a world where politics have a trickle-down effect on Wall Street and Mortgage Markets.
Overall, mortgage rates are better at the beginning of February compared to the beginning of January; however, they are effectively the exact same as the beginning of December. Markets have been volatile, and we don’t expect the volatility or any changes of significance to occur with mortgage rates during Q1.
Local Market Impact
Locally, the Los Angeles area experienced devastating fires, displacing tens of thousands of families—a crisis that will create a trickle-down effect on local real estate.
Meanwhile, Elon Musk was appointed to run the Department of Government Efficiency and has already pointed out areas of government waste, most recently identifying $200M from the USAID department.
A Constant Stream of Uncertainty
It seems like every day, there has been a new headline, a new threat, a new story that captures attention—but what does this all mean?
The reality is Wall Street doesn’t know what to make of any of it.
Scott Bessent was appointed Secretary of the Treasury, and his recent comments have been the only stabilizing force in markets. While that may be short-lived, it at least gave traders some level of assurance, and the volatility has leveled off for the time being.
Trade Tariffs and Inflation
Long-term, what do we think about the Trade Tariffs?
We believe Trump likes using the threat of tariffs more than tariffs themselves. It’s a bargaining chip that forces other countries’ hands, and when it comes to the art of the deal, this is just another tool available for Trump to feel like he’s getting the better end of the situation.
Tariffs are inflationary by nature, but that doesn’t mean inflation will immediately go up. In many instances, the result of a tariff could lead to ripple effects that are deflationary, making it a wash.
With CPI being released later this month and our forecasting models, we believe that real inflation is much closer to the Fed’s 2.0% target than the numbers suggest.
Remember, there is lag in a lot of this data—while PCE currently sits at 2.6%, we feel a more realistic number is 2.2% after factoring in the lag in shelter costs and unemployment data catching up.
With Fed Chair Powell keeping rates higher for longer, this figure should continue to go down. As old data falls off reports, we would not be surprised to see PCE hit 2.0% this year.
The DOGE Factor
DOGE has also made a ton of headlines, and I’ve been asked recently: How does this impact mortgage rates?
The real answer is that no one knows.
We’ve never had DOGE before, so the impact of their policies and cuts will be a first-time result for everyone.
The term “waste” is somewhat vague—what one person sees as waste might be a necessity for another. But taking politics out of it, any time a person, business, or country can eliminate unnecessary spending, reduce debt, and increase capital, it’s a good thing.
Why do Americans change cell phone providers so frequently? They save money and get better service. Why do Companies renegotiate their debt for better terms or change service providers? Simple, to save money and create more profits.
If DOGE can really do this for us as a country, I don’t see an economic downside.
Potential Impact on Mortgage Rates
What would really impact mortgage rates is if the extra money being saved were reinvested into Treasuries.
Let’s not forget that at one point, the U.S. Government was the largest purchaser of Treasury Notes—this created demand, sent prices down, and mortgage rates followed suit.
Will they do it again? What will they do with the money they “save?”
I’m not sure, but if used correctly, this could have a big impact on housing.
The Unemployment Puzzle
Unemployment has risen, and while I kick out the conspiracy theories, the BLS data is definitely flawed.
The BLS publishes both their business survey and their household survey. This is supposed to be a real-time indicator of unemployment, there is some guesswork and modeling that is used but it’s supposed to be a pro-active instead of reactive indicator
Unfortunately, when the QCEW (which is actual verified data covering over 95% of US Jobs) is published, the BLS modeling is almost night and day different from the real data in the QCEW.
I know reactive data doesn’t tell the full story but if the BLS reflected data similar to the QCEW, unemployment would be closer to 5%—and we ultimately feel that’s a more accurate depiction of the labor market.
What This Means for Homeowners & Buyers
So what does all this mean for homeowners, home buyers, real estate agents, and people in the mortgage industry?
- Don’t expect much change in Q1 of 2025 when it comes to mortgage rates.
- Don’t expect much change in housing supply.
- Don’t expect home prices to go down anytime soon.
We still have far greater demand than supply, and while it will take time for mortgage rates to go down significantly, we do believe that over the next 12 to 18 months, we’ll see lower rates.
We feel that home appreciation will continue to climb, and the best time to buy real estate will always be in the past.
Owning and purchasing real estate should be viewed as a professional service—a strategic asset acquisition.
It should not be viewed as buying a product like a coffee machine.
We understand that everyone’s situation is unique—and each person should have a different approach when buying or financing a home.
Always feel free to reach out with questions or forward our contact information to family and friends.
Until then, have a great February—we look forward to speaking with you again soon.
