Personally, I don’t see this as an important step, but considering Fed President Waller’s comments last week about possible rate cuts, it is a positive development that the 10-year yield is not at 4.81% this morning.
I believe some members of the Fed are concerned about mortgage rates rising above 7% again, although not all share this view. Economic cycles are reflected in labor force data. In previous cycles, when the Fed kept mortgage rates high, homebuilders began laying off workers, and recessions were not far behind, as the chart below shows.
Since i The Federal Reserve currently focused on its dual mission – monitoring both inflation and the labor market – it is encouraging that Waller made this statement last week. This marks a contrast to 2022 and 2023 when it appears that 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 highs for the year. My 2025 forecast for the top mortgage rate in 2025 is 7.25%, and we have already reached that level. So far, GDP has been running at 3% in the last three quarters and retail spending is still growing. The Fed has told us that this is something they are considering. Also, the data on frivolous claims is historically low.
Trump’s second major move on housing is his executive order that appears to loosen regulations for builders. The announcement states that regulations account for 25% of the cost of the house. While his executive order may not mean that prices will drop by 25%, he may give builders more flexibility to use their extra profits to lower prices and boost new home construction. Builders are not the March Of Dimes and some of their best recent growth has been in anticipation of less regulation — and President Trump has delivered.
In terms of the labor market, high prices do not benefit builders, and economic cycles often end when housing jobs are lost. I’m keeping a close eye on this situation, which is one reason I believe Trump is focused on deregulation. So for now, it’s a positive development for the housing market as long as mortgage rates continue to fall.
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