"No Intention" Calms Markets
New Two-Month Rate Forecast at HSH.com
April 25, 2025 -- At a time where there is a great lack of clarity, investors are already having a difficult time deciding which way to turn. Will changes in trade, immigration, fiscal policy, and regulation result in spiraling inflation? Spark an economic downturn? Both? As some of these policies seem to be written as we go along, it's really hard to consider what their outcomes may be, and the last thing investors want to see is a new battle forming between the White House and the Federal Reserve.
On several occasions last week, the president taunted the Fed Chair, making unflattering comments and threatening to fire him. Financial markets took this rhetoric as something that might threaten the Fed's independence, and stocks spent several days in selling mode while bond yields spiked higher again. Come Tuesday of this week, that market disruption saw the president step back, saying he had "no intention" of firing Fed Chair Jerome Powell.
The shift in stance calmed investors, for now. Bond yields settled back again and were materially lower late Friday than where they began the week, and major stock indices powered considerably higher. Like seemingly everything else of late, whether this comity can last is unclear.
If not for the tremendous uncertainty created by what seems to be a scattershot method of enacting federal policies, the Fed might have already been considering lowering rates, which is what the president wants, and perhaps as soon as the FOMC's next meeting in early May. However, until it has some sense of how policy changes will impact its ability to achieve its dual mandate, the Fed really has no choice but to sit on its hands and wait.
Sitting and waiting, too seem to be wide swaths of the economy. The Fed's latest regional survey of economic conditions (called the "Beige Book" for the color of its cover) noted that of the 12 Fed Districts that "Just five saw slight growth, three noted activity was relatively unchanged, and the remaining four reported slight to modest declines" in the six-week period leading up to April 14. This "5-3-4" outcome was a bit of deterioration compared to the previous (February's) "4-6-2" outcome as one District moved toward expansion while two moved in the other direction. The new report noted that "Employment nudged slightly higher on balance," that "prices increased moderately in most Districts [but] several Districts reported an uptick in the pace" of increases in costs, and there were several mentions of concerns regarding tariffs and trade.
Amid rising uncertainty but pre-tariff announcement, the economy throttled back in March. The National Activity Index from the Federal Reserve Bank of Chicago posted a -0.03 for the month, falling back from a solid +0.24 in February. This amalgam of some 85 economic indicators seeks to show if economic growth is above or below "potential", a.k.a. the economy's ability to expand without throwing off imbalances. Potential is a moving target over time, but may presently be a GDP figure of something between 1.8% to perhaps as much as 2.4% or thereabouts. Whatever the exact "potential" figure is at the moment, the economy performed just slightly better than it in March.
Want to get MarketTrends as soon as it's published on Friday? Get it via email -- subscribe here!
Or maybe it didn't. The Conference Board's index of Leading Economic Indicators for March also downshifted, posting a -0.7% mark last month. The LEI is purported to foretell economic conditions in the coming months, but probably better reflects conditions in the month in which its components are gathered. As far as forecasting goes, the LEI has posted just one positive reading the last two years even as the economy has performed very solidly.
Those models notwithstanding, and based upon the Federal Reserve Bank of Atlanta's GDPNow model, we are likely to see a contraction in growth for the first quarter of 2024. While the actual first (advance) estimate of GDP for Q1 is to be released next week, the GDPNow model pegs growth for the period at -2.5%. The Atlanta Fed also has a version that excludes the influence of surging gold prices which are distorting the original version's calculation; even then, that outcome still puts growth at a -0.4% pace to start 2025. We'll see how accurate the model is (or not, and which one) come Wednesday.
Find these only at HSH.com!
We have long expected to see the spring housing market this year be a fairly muted one, what with still-high mortgage rates, high home prices and limited availability of homes. Early evidence of this came this week from the largest component of the housing market when the National Association of Realtors reported that existing home sales slumped 5.9% in March. As it takes 45-60 days for a home sale to move from contract signing to closing, the decline in activity to a 4.02 million annual pace is reflective of demand from late January and February, long before financial markets began roiling with the imposition of tariffs and more.
The slower pace of sales coupled with more actual inventory coming onto the market lifted the inventory- to-sales ratio back up to 4 months at the present rate of sale. Also increasing again were prices of existing homes; the $403,700 for March was an all time high for the month and the 21st consecutive month where the current monthly median sale prices was above year-ago levels. Even with less-robust existing home sales, we still expect to see a new record-high median selling price later this year.
|
We've noted in recent months that home builders have had the blues, challenged as they are by the conditions that affect the existing housing market, but also from tariff increases, labor issues and more.
That said, it does appear that actually selling homes isn't an issue, and sales of new homes in March rose by 7.4% to a 724,000 annual rate, the fastest pace since last September, when mortgage rates were considerably lower than present. The bump in sales depleted supply, but just a little, as the inventory-to-sales ratio for new houses eased from 8.9 months of supply to 8.3 months. Despite the apparent shrinking of supply, the actual 503,000 (annualized) units available for sale is the highest such figure since November 2008, so there are plenty of new homes available to buy. As well, new home prices are very competitive with those of existing homes; the median price of a new home sold in March was $403,600, $100 less than that of an existing home. Unlike the 2.7% year-over-year increase in prices for previously-owned homes, those of new stock were 7.5% lower than last March -- and builders continue to use pricing and financing incentives to keep moving houses, too.
A measurable bump in mortgage rates over the last couple of weeks had the expected effect, and consumers looking for loans pulled back. The Mortgage Bankers Association reported that there was another 12.7% decline in requests for mortgage credit in the week ending April 18; applications for funds to purchase homes stepped back by 6.6%, while those to refinance existing mortgages slumped a full 20%. The longer long-term fixed rate mortgage rates remain closer to 7% than 6% the less likely it is that a durable increase in mortgage applications will appear.
We'll receive a national review of manufacturing activity for April next week, but based upon what we've seen so far this month from local reports, it will likely be nothing to get excited about. This week, regional reports from the Federal Reserve Banks of Richmond and Kansas City were released, and neither showed any improvement. The Richmond Fed's overall measure sported a -13 value for the month, a nine-point decline from March. The measure covering new orders slumped 11 points to land at -15 and the employment metric declined by four to -5. Not declining was the measure tracking input prices, which was up again, and is now at a level about two times where it was to start the year. The tale in the KC Fed's District was much the same; the headline figure dropped (to -4 from -2), new orders barely budged, improving by 1 point to -11, employment fell back seven points to -11. Like the Richmond district, and with a value of 42, the prices paid measure was more than two times January's level.
See today's mortgage rates every day at HSH.com
Does mortgage history repeat? Usually. Find out what happened last week/month/year with MarketTrends archives!
Manufacturing conditions are fairly soft, and costs rising. You might be tempted to think otherwise if you saw a 9.2% increase in orders for durable goods in March. Unfortunately, those increases were concentrated in the aircraft sector and so not beneficially spread throughout the economy, at least as yet. Leaving out aircraft and defense-related spending, new orders for durable goods managed only a 0.1% increase, but that was at least a modest improvement on February's -0.3% mark.
Next week, we'll get the March Job Openings and Labor Turnover Survey (JOLTS) as well as the April employment situation report detailing new hiring, wage growth and unemployment metrics. From what can be gleaned from weekly claims for initial unemployment benefits, it seems likely that a fair but hardly spectacular set of reports are due. In the latest update (covering the week ending April 19), just 222,000 applications for unemployment benefits were filed, up 6,000 from the previous week, but also pretty stable at a low level that has largely persisted for months now. Continuing claims for assistance eased a little in the latest week but still remain closer to three-year highs than not -- but that been the case for several months now, too.
The early month review of Consumer Sentiment from the University of Michigan showed pretty dour demeanors among those who responded to the poll, with the headline index value coming it at its second-lowest value ever in the survey that has run for 60-odd years. The early-month poll was taken after the president announced the imposition of tariffs but before the 90 day pause was announced (and also before the subsequent escalation with China). Released this week, the final update for the April was still quite dark, but modestly improved compared to the early-month period.
For April, the index for Consumer Sentiment declined 4.8 points to land at 52.2 (it was 50.8 mid-month). The measure of current conditions declined by four points to land at 59.3 while the expectations measure declined by 5.3 points to just 47.3 for the month, the lowest it has been since July 2022. Inflation expectations continue to press higher; the one-year forecast for inflation leapt to 6.5%, highest since 1981, and the five-year expectation for price increases moved up 0.3% to 4.4%. The one-year measure was a slight bit better than the early month 6.7%, while the five-year was unchanged.
Current Adjustable Rate Mortgage (ARM) Indexes
| Index | For The Week Ending | Year Ago | |
|---|---|---|---|
| Apr 18 | Mar 21 | Apr 19 | |
| 6-Mo. TCM | 4.21% | 4.28% | 5.39% |
| 1-Yr. TCM | 3.98% | 4.09% | 5.17% |
| 3-Yr. TCM | 3.83% | 3.97% | 4.80% |
| 10-Yr. TCM | 4.34% | 4.27% | 4.63% |
| Federal Cost of Funds |
3.661% | 3.666% | 3.893% |
| 30-day SOFR (daily value) | 4.35006% | 4.34237% | 5.32901% |
| Moving Treasury Average (MTA/12-MAT) |
4.497% | 4.574% | 5.114% |
| Freddie Mac 30-yr FRM |
6.83% | 6.65% | 7.17% |
| Historical ARM Index Data | |||
Aside from the market cheer over the presidential "JK!" with regards to the Fed Chair's potential termination, there was also a bit of cheer from news that there may be some discussion between the U.S. and China regarding trade and tariff levels. That said, it's hard to know how much substance there is to the reports, and these kinds of things seem to change from hour to hour, but even the prospect of discussions is enough to help lift investor spirits.
Markets continue to be volatile, although the volatility this week was on the beneficial side for a change, with equity indexes rising and bond yields falling. The month ends and the calendar turns another page next week, and who knows what conditions await investors; it's not clear that the old "sell in May and go away" adage will prove true this year, what with the whipsawing we've seen over the last month. Mid-spring now upon us, it would be good to see a tranquil period for markets, but this just doesn't seem all that likely.
Based upon how this week progressed and how bond yields moved, it seems likely that we'll find lower mortgage rates in the market for potential homebuyers next week, but just slightly so. We expect to see perhaps a 2-4 basis point decline in the average offered rate for a conforming 30-year FRM as reported by Freddie Mac, but it could be a bit if the "no intention" rally can continue into next week.
Although there is much uncertainty and the financial markets have been volatile, we're undaunted, and offer our latest Two-Month Forecast for mortgage rates covering late April through late June.
See our 2025 Mortgage and Housing Market Outlook, covering mortgage rates, housing conditions, the Fed and lots more.
Also, for a really long-run outlook, you'll want to review "Federal Reserve Policy and Mortgage Rate Cycles".
Have you seen HSH in the news lately?
Want to comment on this Market Trends? -- send your feedback, argue with us, or just tell us what you think.
See what's happening at HSH.com -- get the latest news, advice and more! Follow us on Twitter/X.
For further Information, inquiries, or comment: Keith T. Gumbinger, Vice President
Copyright 2025, HSH® Associates, Financial Publishers. All rights reserved.