After last month’s shock and awe of the Trump Administration’s widespread tariff war, markets saw a glimpse of hope after the trade deal with the UK was announced. The deal kept the 10% tariff in place but lowered the all-in tariff against the U.S. from 5.3% to 1.8%. It was friendly to U.S. farmers and will make it easier to export goods to the UK.
In response, Stocks rallied and Bonds sold off, which caused mortgage rates to trend up. When we look at the move in mortgage rates “up,” it’s a relative term since the move didn’t significantly change mortgage rates—and today we’re seeing bond prices trend in a good direction and we’ve almost recouped all of yesterday’s losses.
The big news could come over the weekend as the U.S. and China start their negotiations. Trump posted yesterday saying that 80% tariffs felt right and he was in favor of dropping them from the 145% they currently sit at. In our opinion, this is all just negotiation and posturing, since the reality is that any tariff over 50% just halts trade each way. Whether it’s 50%, 80%, or 500%—you’re not doing business with each other, so the percentage isn’t relevant.
The BLS jobs report came back at the end of April much higher than expectations, which has again put the BLS in economists’ crosshairs. Almost every other data point shows a weakening economy and lower jobs numbers, but the BLS (because of their faulty birth/death model) continues to show strong employment.
Over the past 3 years, the BLS has continued to report high employment figures—only to revise them lower in the coming months. In some cases, they’ve revised the numbers so much that it actually showed job losses, not gains—but no one sees it since that comes months after the fact.
The NY Fed Consumer Expectations Survey was released yesterday, and it showed consumers are expecting higher inflation, lower incomes, and higher unemployment. Income expectations have been the weakest since April 2021, and unemployment expectations have risen to the highest level since April 2020, which is right when the COVID lockdowns started.
The ADP, JOLTS, and every other survey/report are showing weakness in the labor market, but somehow the BLS continues to show more and more jobs being created. We think the Fed should ignore the BLS data as they make their decisions on rate cuts, but the Fed seems convinced that it’s good data.
Based on Fed Chair Powell’s last meeting, they think there is no risk in waiting and no need to preemptively cut rates. This could be a big mistake and could potentially tarnish Fed Chair Powell’s legacy when he is done with his term next year.
So how does it pertain to Real Estate and Mortgage Markets? As of today, not much. Mortgage Backed Securities have been trading in a steady range for the past month with a few ups and downs. We expect to see continued volatility on Wall Street, and we still believe that the overall trend in rates is down.
Housing continues to remain strong with much higher demand compared to supply, and we still believe that the 4% to 5% appreciation forecast we made in January will hold true. Housing continues to remain a foundational element in building wealth in America and a safe haven in times of uncertainty.
We understand that every client’s situation is unique, and we’re more than happy to have a private consultation with you, your friends or family anytime. Always feel free to reach out if we can be of service, provide advice, or make connections for anything real estate related.
