On The Market US Economy Shrinks: Why Mortgage Rates Aren’t Dropping (Yet)
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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.
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GDP Decline and Tariff Impact
- U.S. GDP shrank in Q1 2025 by 0.3%, signaling potential economic contraction.
- This decline partly reflects increased imports before tariffs raised prices, not just inherent economic weakness.
Strong Labor Market Delays Rate Cuts
- Despite GDP decline, the labor market remains strong with job growth and low unemployment.
- This resilience likely delays Fed rate cuts and keeps mortgage rates higher for now.
Recession Label Is Less Relevant
- The label "recession" is less relevant than actual economic conditions like jobs and inflation.
- Strong employment and manageable inflation matter more to personal and investment decisions.