Personally, I don’t see this as a significant move, but considering Fed President Waller’s comments last week about more potential rate cuts, it’s a positive development that the 10-year yield isn’t at 4.81% this morning.
I believe some Fed members are concerned about mortgage rates rising above 7% again, although not everyone shares this view. Economic cycles are evident in the labor data. In previous cycles, when the Fed maintained high mortgage rates, homebuilders started laying off workers, and a recession wasn’t far behind, as the chart below illustrates.
Since the Federal Reserve is currently focusing on its dual mandate — monitoring both inflation and the labor market — it’s encouraging that Waller made this statement last week. This marks a contrast to 2022 and 2023 when it appeared the Fed was less concerned about rising mortgage rates.
In terms of mortgage rates, if the economic data starts to weaken, we may have already seen the peak rates for the year. My 2025 forecast for the highest mortgage rate in 2025 is 7.25%, and we have reached that level already. So far, GDP has been running at 3% in the last three quarters and retail sales consumption is still growing. The Fed has told us that this is something they take into account. Also, jobless claims data is still historically low.
The second Trump action that’s significant for housing is his executive order that looks to reduce regulations for builders. The announcement states that regulations account for 25% of the cost of a home. While his executive order doesn’t mean prices will drop by 25%, it could provide builders with more flexibility to use their additional profit margins to lower rates and increase new home construction. The builders aren’t the March Of Dimes and some of their recent positive confidence growth has been on the anticipation of less regulation — and President Trump delivered.
Regarding the labor market, higher rates are not beneficial for builders, and economic cycles typically end when jobs in residential construction are lost. I’m closely monitoring this situation, which is one reason I believe Trump is focused on reducing regulations for builders. So for now, it’s a positive development for the housing market as long as mortgage rates keep heading lower.
