A WEEKLY GLIMPSE OF REAL ESTATE NEWS
6/9/25
Media Reports on Interest Changes: The media’s reaction to even the slightest rate adjustment, provided without details, can be deceptive. Further exploring the latest rate reduction announcement, it turned out to be .04% . Translated that turned out to be a rate reduction from 6.89% to 6.85%. The actual monetary reduction results for a $400,000 loan with a 30-year term calculates to $10.69 a month. Although it is a reduction, it is hardly sufficient to make a dent in a borrower’s affordability or ability to qualify for a loan. While we welcome every interest rate reduction it might be more beneficial if the real-world consequences of the actions accompanied the headline “rates fall” or ia few days later when the headline reads “rates increase”. Your selected mortgage representative is likely your best source of accurate information.
Will the Trump-Musk Spat Affect Lending: The quick answer is that we don’t know. It certainly adds another layer of uncertainty to the market. The initial concern is whether investor confidence will be impacted. The bond market yields are closely tied to mortgage rates and a weakness in the bond arena could result in higher rates.
Under Musk, the Department of Government Efficiency (DOGE) significantly altered a host of Federal agencies, including the Department of Housing & Urban Development (HUD) and the Consumer Financial Protection Bureau (CFPB) by reducing staff, closing offices and restructuring to effectively limit their impact. The budget bill, narrowly passed by the House and now under scrutiny in the Senate, further expands DOGE’s authority allowing it to override certain guidelines of these agencies going forward. Would Whie House criticism of past DOGE decisions erode some of its authority? Will the remaining DOGE employees, presumably loyal to Musk, be removed or replaced?
The belief that Musk was highly involved in the creation of the big, beautiful budget bill is now being disavowed by Musk. What will this mean for the housing elements contained in the bill? Policy direction and regulatory enforcement shifts, while perhaps welcomed by some, could be disruptive to the economy as a whole and to housing and lending practices specifically.
By the assessment of some, this is a hot mess and bottom line we don’t know if any of this will make a difference in our future mortgage market. (Note: Within a few days, the rift seemed to quiet as both sides realized some mutual destruction could occur. The media circus is likely to move on to the next hot topic unless the ego of one or the other or both keeps the feud alive.)
Rate Speculation: The Federal Reserve (FED) next meets on the 17th & 18th of this month. The FED’s dual mission is to control inflation and to maximize employment. Higher interest rates were the major tool over the last 18 plus months in bringing inflation down to the current 2.3% level. While still above the FED’s desired annual 2% goal there was anticipation that a stable inflation factor would allow the FED to initiate rate reductions. A simultaneously slowing economy would usually expedite the FED lowering rates but the potential inflationary impact of the tariff situation has caused the FED to pause.
Although the President has tried to exert pressure, both in a personal meeting with the Fed Chairman, Jerome Powel has resisted pressure indicating that the FED will not bow to political pressure but rely upon economic data in making their decisions.
In the meantime, the economic date upon which the FED relies on for its decision-making is being called into question. The agencies, mostly the Labor Department, responsible for compiling economic data have had serious depletions in staff and their ability to gather reliable information has been affected. The recent significant decline in private sector jobs creation raised a red flag while the FED awaits more (hopefully reliable) job information this week.
The FED finds itself in a tough position as they try to determine which is the greater problem between two economic conditions (inflation and employment), each requiring a different interest rate stance, and then selecting the most appropriate (nonpolitically related) rate response. A tough task as they juggle White House criticism that constantly questions their decisions while concerns about data reliability mount. Stay tuned.
Is a Buyers’ Market Developing: Media is now reporting that nationwide we have gradually and quietly transitioned from a seller to a buyer’s market. Homes for sale inventory has increased while the housing market overall remains in a bit of a holding pattern. Economic uncertainty has made many prospective home buyers hesitant to commit to purchasing. In the meantime, sellers have been slow to react to the change and home listing prices remain elevated. There is some evidence that sellers are becoming more negotiable as they accept offers at less than list price and/or offer other concessions, usually paying some or all of the buyers’ closing costs. Although on the surface this seems like good news for would-be home buyers, we must remember that all real estate is local. Check your local real estate sales and lending professionals for details regarding the local housing market.
Fannie and Freddie Update: I suspect that you are tired of hearing about Fannie Mae and Freddie Mac but these two Government Sponsored Agencies (GSEs) are critical to the health of our mortgage market. Historically, both entities were quasi-private when in 2008 the great housing financing collapse occurred. The potential loss to the agencies could have been even more catastrophic had the government not intervened and supported the mortgages held by Fannie and Freddie. Although criticized as a bank bailout, investors claimed that there was an “implied guarantee” that Fannie and Freddie were insured by government backing. The result was that billions of funds were infused to ensure the solvency of mortgages; the entities were then placed into receivership until bailout funds were repaid to the government.
Repayment has long ago occurred and the President has indicated that it is time to restore the agencies to private status with shares available on the stock exchange. The President has pledged that the government’s “implicit guarantee” would continue. Critics indicate that this means that shareholders will reap all financial benefits while the public will be responsible for all losses. (A very desirable shareholder position)
The guarantee would be necessary if the GSEs are to retain their high credit rating allowing continued purchase of mortgages and then repackaging them into mortgage-backed securities to be sold with a guarantee of repayment to investors. By purchasing the bulk of conventional loans, the GSEs provide the liquidity required for the loan market to function. It allows for 30-year financing, helps keep interest rates affordable and allows for the continuous flow of funds. Bottom line, it is not easy to manage this transition to privatization without potentially interrupting the current system upon which the real estate financing world depends. While not a new idea, the transaction has not already occurred because a well thought out plan that would not interrupt the mortgage market has yet to emerge. This is not a task to be undertaken with either a “chainsaw remedy” or a “let’s see if this will work” strategy. More info to come.
(Note: Over the weekend, Democratic Senators have asked Bill Pulte, self-appointed head of both GSEs, for copies of the analysis, if any, being used to promote the privatization move.)
As always, until next week, be good to yourself and kind to others.
6/2/25
Good News – Maybe: Mid last week, the court of international trade determined that the President does not have the unilateral authority to impose arbitrary tariffs. The market reaction was mixed, a bit of enthusiasm but mostly confusion regarding what occurs next. As has been the situation recently, the markets initially rose on the new but quickly readjusted, especially as the appeals court overruled the initial order and tariffs were at least temporarily reinstated. The President has signaled that he will seek an emergency opinion from the supreme court.
Initially expected to render a quick opinion, the Supreme Court has yet to make a decision, leaving businesses, consumers and trading nations cautiously optimistic but still in limbo. The Supreme Court seems to be waiting until the Appels court meets again on June 9th). The administration’s willingness for appeal and delay and the President’s projected willingness to ignore court decisions of which he disapproves also gives everyone pause.
Many view the tariff situation as irrational, unpredictable and inflationary, without an discernable overall plan. The FED, in the meantime, seems determined in its wait and see stance. As of this writing, the situation remains fluid and we are unsure what the ultimate result will be for the economy.
Interest Rates React to Ratings Cut: We generally discussed bonds last week – this is a follow-up. The U. S. finances its debt via bonds that are then sold worldwide. These bonds have traditionally had the highest rating (triple A) due to the confidence in repayment because the U. S. has never defaulted on its debt.
There are three major credit rating agencies, Standard and Poor’s (S&P), Fitch and Moody’s whose ratings determine a company’s (and in this case our nation’s) financial health and ability to repay its debts as they come due. S&P and Fitch had over the last two years downgraded the U.S. rating and Moody’s joined the big three last week. A change in rating can significantly impact the confidence of bond investors and their willingness to risk buying our bond debt. At the very least, the newly adjusted risk will alter the price paid for our debt, increasing our nation’s annual debt payments.
The earlier ratings reductions were the result of increasing debt, exemplified by the inability of congress to agree to any meaningful debt ceiling limits. Moody’s grade reduction was seemingly the result of the current budget passage (see above comment) and the trillions of dollars of increased debt contained therein. Arguments flourish as to why the debt is so steep but the most discussed culprit is the extension of tax cuts passed in the President’s first term and have estimates up to $4 trillion in additional debt.
The FED’s reaction is that the significant increase in debt accompanied by the ratings reduction is likely to result in increased inflationary pressures. Retaining high interest rates is the typical solution to curbing inflation. As suggested in the past glimpse articles, unless a slowing economy with surging unemployment occurs, interest rates could be retained higher for longer. Let’s see what happens next on the legislative agenda.
Home Insurance Cost Cutting: As a homeowner you may have had a significant increase in your home insurance premium or worse, you may have received a cancellation notice (I will address the cancellation dilemma next week). Raising your deductible limit might help but be sure that you have the financial resources to pay for any unexpected expenses. . Regardless of the deductible limit, be cautious about actually claiming smaller incidents as companies use claims as a reason for policy cancellation. Notify your insurer of any improvements that might qualify for a discount – newly installed fire-resistant roof, alarm system, brush clearance, etc. Is there any discount available for having been claim free for a period of time? Bundling the car and home insurance can sometimes make a difference. Eliminate coverage of barns or sheds and concentrate on home coverage. Finally, shopping for another policy might be a good idea but be careful. Do not cancel insurance until you are assured of other coverage.
Market is Headline Driven: Generally, we expect the headlines in the media to be informed by market conditions. Instead, today’s markets seem to reflect yesterday’s headlines. For instance, the announcement of 50% tariffs on the United Kingdom saw the markets immediately decline. Within two days, the headline was the President reporting that he had paused the UK tariffs and the market rebounded, seemingly based only on that headline. The same market rollercoaster occurred during the above mentioned everyday headline changed announcing the tariffs are illegal, no wait, the tariffs are legal.
Without some rational concept around the policy and a clear objective we, and our trading partners, will be subjected to a market continuing to being whip-sawed by uncertainty created by incomprehensible and unpredictable tariff consequences. Under those circumstances, how likely is it that some tariff resolution with the UK will occur within the several weeks of tis current pause that will avoid another round of convulsive market reaction, again prompted by headlines?
In the meantime, the FED remains concerned about the possible inflationary consequences of an uncertain tariff situation and is unlikely to make any interest rate changes until some measure of predictability develops.
Setting up the Fall Guy: FED chairman, Powell, has been under increasing pressure from the President to reduce interest rates, including being summoned to the White House for a meeting. The call for rate reduction has now been expanded to other officials, including Bill Pulte, self-established head of both Fannie Mae and Freddie Mac. As indicated in the above comment, the FED is reluctant to make any rate change while trying to decipher the inflationary impact of a still unpredictable tariff policy. As most economists report a concern over probably renewed inflation accompanied by potential rising unemployment and market slowdown (called stagflation), the administration seems to be seeking a villain or fall guy for the impending economic downturn. The FED and Jerome Powell specifically, is the perfect villain who failed to lower interest rates and avoid the economic plummet.
Budget Bill Realities: Depending upon who is talking, the proposed budget bill is going to allow the nation to grow its way out of debt or the bill will plunge the nation into the greatest debt cycle in history. While both of those opinions determining the real economic impact are likely exaggerated, the media has focused on the more controversial aspects of the bill. The claim that the bulk (70% or more) of the promised tax relief will benefit the already wealthy appears accurate. In spite of claims not to touch social security and Medicaid, substantial reductions to these programs are necessary to pay for the tax relief and significant reductions to both appear in the bill. In regard to housing issues, citing the desire to reduce construction costs, the bill mostly rescinds past energy related legislation like the elimination of energy and water efficiency retrofits. The bill permanently reduces the funding and oversight capability of the Consume Finance Protection Bureau (CFPB). On the other hand, The SALT deduction (the amount of local and state tax deduction allowed on Federal returns) is significantly increased along with an increase in tax credits promoting low-cost housing construction. On balance, the housing issues addressed in the budget bill are quite minimal. Changes are still possible as the House approved bill is now in the Senate. Stay tuned.
As always, until next week, be good to yourself and kind to others.
We at Humboldt Home Loans are always available to answer any of your real estate finance questions.
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