On The Market

US Economy Shrinks: Why Mortgage Rates Aren’t Dropping (Yet)

May 5, 2025

The US economy is contracting, but mortgage rates remain stubbornly high. A resilient labor market is keeping the Fed on hold, despite fears of a recession. Tariffs are driving up construction costs, making homebuilding increasingly uncertain. Builders are hesitant, cutting prices, which could affect home values nationwide. The interplay of job growth and economic challenges raises critical questions about the future of housing and investment opportunities.

31:25

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Quick takeaways

The U.S. economy is shrinking, yet a stable labor market is preventing the Fed from cutting mortgage rates imminently.

Rising material costs due to tariffs are discouraging home builders, potentially leading to higher prices in the housing market.

Deep dives

Impact of GDP Contraction on the Economy

The U.S. economy experienced a modest contraction of 0.3% in the first quarter, raising concerns about potential recession indicators. While defining a recession officially is complex, the commonly used measure of two consecutive quarters of GDP decline suggests there could be ongoing challenges. This contraction is possibly linked to preemptive consumer behavior amid tariffs, as businesses imported more goods before price increases, impacting GDP calculations. Despite the decline, focusing on the actual economic conditions is crucial, as the labor market remains stable, influencing future investment strategies.

Intro

8min

GDP Dynamics and Real Estate Insights

4min

Understanding the Relationship Between Labor Market Strength and Mortgage Rates

8min

Navigating Current Economic Trends in Real Estate

4min

Builder Sentiment and Housing Dynamics

7min

The US economy is shrinking, with GDP declining this quarter. We’re getting closer to recession territory, so why aren’t mortgage rates dropping? We’ll explain how one crucial part of the economy is staying strong—keeping the Fed from cutting and delaying the typical rate-drop that comes with a recession. What’s stopping us from going back to sub-6% mortgage rates? We’ll break it down in this episode.

The economy is changing—fast. The US saw its GDP turn negative last quarter as many Americans braced for the impact of tariffs. But even with the overall economy lagging, labor data remains strong. Jobs are still being created, unemployment is relatively low, and Americans are going to work. This may be the single factor keeping the Fed in limbo, unable to cut rates any further. So, what happens if the labor market breaks?

Home builders were already anxious over the past year, and now they’re getting even more hesitant to build. With tariffs pushing up prices for materials, building (and buying) a house could get much more expensive. And with builders already dropping prices, could this lead to a broader decline in home prices across the nation?

In This Episode We Cover

A worrying sign for the US economy and whether it could trigger lower mortgage rates

The one thing standing in the way of the Fed finally cutting rates again

Tariff effects on GDP and the first signs of what they could do to our economy

New labor market numbers and why jobs are being added as the economy shrinks

Are we in a recession? And does it even matter if we are?

And So Much More!

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