Housing A Recession Doesn’t Rate

March 5, 2025
  • Recession Talk Has Crept In To The Economic Conversation
  • Chaotic Economic Policy Pauses The Consumer
  • Recession Means Real Job Loss But Possibly Lower Rates

Well, it’s been a chaotic 2025 so far with the uncertainty ratcheted up to sky and tariff policy’s blunt force trauma thrown against friends and neighbors. If you’ll recall, implementation of tariffs in 2018 specifically punished soybean farmers, incentivizing China to find other sources. China succeeded and never came back to those farmers so they never recovered. Tariff policy is one of the primary reasons for current economic chaos – I’m leaving out the actions of DOGE for now – yet the reasons for implementation remain largely an unexplained mystery, which is just the thing that causes homebuyers to pause. In fact, the Atlanta Fed just forecast GDP to plummet from nearly 4% to 2.9% in Q1. Wow.

I’m just spitballin’ here, but it is starting to look like the plan is to damage the economy severely so that interest rates fall to counter the higher inflation signals. In other words, push hundreds of thousands of people out of work and push housing costs higher so that we can all enjoy lower interest rates. Mortgage rates have been slipping nominally for the past five weeks to a two-month low. According to the right-leaning Tax Foundation, the latest round of tariffs will add $1,072 in taxes to every U.S. household on top of rising inflation signals.

Tariffs Are Inflationary. Free Trade Is Deflationary

I last wrote about tarifs a few weeks ago and continue to have conversations about this with a slew of economist colleagues. The current tariff policy being implemented has been devoid of contemplating the retaliatory damage it will cause the U.S. The following chart gives an indication of the tariff view in economic circles, as does this article in the Review of International Economics.

Consumer Spending Plunged In January As Did Pending Home Sales

NAR’s Pending Home Sales Index plunged to the lowest on record, although I’m somewhat blaming the unusually frigid weather (I know, I know). At the same time, consumers cut spending in January the most in four years (it can’t be explained as a seasonal thing).

Here’s the best take I’ve read recently on tariffs from one of my favorite business journalists, with the best article title of the year: The Tariffs Hit The Fan. It really breaks down the impact on the U.S. economy right now. It also reminds me of a song on the best punk rock movie soundtrack of all time – what a collection of music from the era!

But I digress…

The last time we saw tariffs this high was in the middle of the Great Depression.

Michigan is going to be particularly hard hit through the auto industry where parts cross the border multiple times. Each crossing earns a 25% tax.

Redfin Sees Recession Through Tariffs

Amongst the chaos, Redfin sees a greater recession risk, particularly in the form of stagflation. I graduated college in 1982 in the midst of stagflation. Weak economic growth, high unemployment, and high inflation. Who wants that?

Final Thoughts

After reading this, I know what you’re thinking. The odds of mortgage rates falling in the back half of 2025 with a damaged economy are probably higher now, and that’s good for housing sales, which have suffered from the lock-in effect and been at the lowest in history. Before the recent round of tariffs, forecasts of 6.3% mortgage rates by the end of the year were typical. But in my view of the past few days of chaos, by intentionally damaging the economy, hundreds of thousands of people are losing or will lose their jobs, so mortgage rates might even dip below 6% by the end of the year. That’s an awful trade-off, in my view.

The administration just announced, as I am writing this Wednesday morning, that they are considering delaying the Canada/Mexico tariffs by a month after stating their implementation was definite just two days ago.

Uncertainty and chaos breeds inaction by the consumer.

The Actual Final Thought – Here’s a very accurate illustration of the trade wars on video.

Monday Mailboxes, Etc. – Sharing reader feedback on Housing Notes.

March 3, 2025: Seat Time, Not Acquired Knowledge, Seems To Be The Currency Of Real Estate Continuing Ed.

  • THANK YOU…..Seriously between you and Erik Enquist with The Real World series you both are saying in print what I grumble about in my head – Now to say outloud on social media……
  • Good Morning Jonathon! Always a Good Read!   Agreed on the mandatory CE requirements. Painful to sit through the narrated voice and unable to speed up the process. You are in good company. However, the revenue stream received will not change the process.  
  • Excellent CE article.
  • You are right on when it comes to CE.  I refer to it as: “Serving my time”.  Truly ridiculous. 
  • Thank you Jonathan. The system penalizes real, hands-on training in favor of regurgitated outdated “appraisal process.” State pay-your-fee approvals cost overwhelms quality in favor of volume.
  • I can relate to your recent post because I’ve been taking a lot of classes lately and look to be taking more very soon as I try to upgrade my license. It costs about $7,000 to get one class approved in every jurisdiction in the US. Ridiculous.
  • Dear Jonathan,
  • My frustrations with the CE options for RE professional are many. We RE professionals are at the frontlines, helping our clients execute some of the most important and financially significant decisions of their lives – shouldn’t we demand higher standards?  I have been at this for over 2 decades and the environment is in constant flux – we should be better prepared. OK…I too am done whining. Thank you for listening.

Did you miss the previous Housing Notes?

February 19, 2025

Seat Time, Not Acquired Knowledge, Seems To Be The Currency Of Real Estate Continuing Ed.

Image: Gemini

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