A WEEKLY GLIMPSE OF REAL ESTATE FINANCE NEWS
4/21/2025
HAPPY DAY AFTER EASTER
Looking For Direction: The stock and bond markets, in free fall from the uncertainty aroused by the erratic tariff decisions, received no comfort from FED Chair, Jerome Powell’s comments. Powell confessed that the FED is facing very difficult decisions as the economy reels toward both an upswing on inflation and an employment downward arc. Missioned to control both of these situations, the remedies are opposite levers of the economy. For instance, to curb inflation an interest increase usually occurs but a decrease in interest rates is the typical cure for a slowing economy. The FED therefore is walking a fine line in which a solution for one situation exacerbates the other. Refusing to tip the FED’s hand, Powell indicated that the FED will “go where the data takes them”. That leaves the pundits predicting anything from one-to-five rate adjustments, perhaps to be initiated as early as their May 7th meeting. Even the most aggressive predictions, surprisingly, suggest long-term mortgage rates will remain above 6.50 for the year. Bottom line, everyone can make a prediction with a fairly equal chance of being accurate. (Chairman Powell’s comment that tariffs will have a “significantly larger than anticipated economic effects, which will include higher inflation and slower growth” was not widely appreciated by the administration. In spite of the accepted concept of an independent FED, the President has been engaged in a vigorous media campaign encouraging the FED to lower rates and is now urging Powell’s termination as chairman of the FED, which if successful means we D Not have an independent FED.)
The Data Conundrum: Depending upon the source of the statistics, the economy is poised to either explode spectacularly or implode disastrously. When I am asked if I think whether the home mortgage interest rates will increase or decrease, my ready answer is YES! The widely different expectations are a product of erratic policy procedure accompanied by conflicting information and the markets’ inability to note any confirmed direction. Businesses can’t plan, employees fear for job security, prices continue to rise (mostly based on tariff fears) and wall street shows its confusion via deteriorating stock and bond market. “Unprecedented” is the word back in vogue to describe, by most accounts, a thriving economy that has, within three months, become unpredictable.
Consumer Sentiment Declines: The recent spending spree by consumers that some viewed as evidence of confidence has now been exposed as a rush to purchase before tariff increases hit the market. Advice from the early hoarding days of the pandemic indicate that storing non-perishable supplies (within reason) can be profitable, purchasing too much in daily consumption goods often results in loss due to waste and unuse by expiration dates. A majority of polled consumers’ opinion is that the economy will worsen, job loss will occur, prices will climb and home mortgage rates will increase. This sentiment suggests that potential home buyers are likely to remain on the sidelines waiting for improvement. While I cannot disagree, I am also aware that unexpected opportunities can emerge in such an environment and would-be home buyers might be well served to prepare to take advantage of any favorable options. (This sounds like so much real estate hype, but becoming preapproved and ready to perform could be a valuable action looking forward to market improvement)
Avoid Analysis-Paralysis: Hitchhiking on the above comment, this market requires careful decision making. It is easy to become paralyzed when weighing all the possibilities. You must assess your personal economic comfort level. Do the math. Don’t be bullied into any transaction without clear thinking and assessment of the pros and cons. At the same time, don’t miss out on purchasing that right home simply because of reluctance to make the decision. Finally, trust your intuition. Your lender can help with the facts and figures but the decision has to be yours.
You might face an affordability situation in which you no longer qualify for the necessary home financing. If so, stay positive. Determine what you can qualify for and initiate the path to home ownership so that you are ready when the market readjusts – because it will. Call us to pre-qualify.
Interesting Comment: I heard a news commentator (a kind description of the reporter) indicating that the housing shortage was largely due to immigrants being allowed to purchase homes. The assertion was that after eliminating all of the free housing having been provided for many years, immigrants were encouraged to buy homes. The report further indicated that the recent elimination of HUD’s loan program for “permanent residents” would increase the supply of homes for real Americans. The message seemed to suggest that all immigrants are somehow taking undeserved advantage and should be barred from participation. There were so many inaccuracies in the report that I can only hope that most listeners understood the comments to be uninformed, offensive and discriminatory. It was particularly galling to those of us who, as a part of our professional mission, pledge to assist ALL ELIGIBLE BUYERS WITHOUT DESCRIMINATION.
Fannie Mae/Freddie Mac Update: I know that I have mentioned these two Government Secured Entities (GSEs) of late but a little additional information might explain how critical they are to the continued success of our mortgage arena. It is a challenge to be brief when the subject can be complicated but I will try.
Although neither Fannie or Freddie make loans, their crucial role is providing liquidity by purchasing mortgages from lending sources, freeing up the funds for the mortgage entities to continue making loans. Via government backing, the GSEs provide comfort to investors that they are stable and the risk of purchasing loans (packaged as bonds) from Fannie and Freddie are risk free, guaranteed by the government. Having been saved by (implicit guarantee) an enormous infusion of funds following the 2008 market collapse, Fannie and Freddie were taken from being private entities into conservatorship.
The current administration is promoting a release of the GSEs from conservatory status, back to privatization. Without a formal government guarantee investor risks to purchasing agency bonds would increase along with rates. Even an “implicit” guarantee would likely cause some rate increase. Complexities abound in returning the GSEs to privatization with accompanying shareholders. Becoming private but with a government guarantee against bond holder losses, suggests that investors’ positions would be that they enjoy 100% profits while the government would endure all losses should the market decline. A very enviable position indeed, for any investor but not necessarily for our at-risk nation.
Therefore, most agree that any “release” from conservatory status would have to be accompanied by some form of government guarantee. The business model with the global leverage accompanying the size of the bond market, the access to risk-adverse global investors, the highest of credit ratings and the availability of low-interest rate mortgages all depend upon this government guarantee. Anything short of that will most likely adversely impact lenders and borrowers alike.
Thus, be aware of wonderful sounding suggestions of privatizing Fannie Mae and Freddie Mac. Privatization in the past did not prove sustainable and in an increasingly complicated global atmosphere what could possibly go wrong?
Until next week, be good to yourself and kind to others.
4/14/2025
(In the absence of any discernible strategy accompanied by daily revisions of tariff decisions, the following could be irrelevant by the time you read it)
Does Anyone Know What Will Happen: A week and a half after “reciprocal” tariffs were imposed on 180 nations, chaos still reigns. After 7 days of a plummeting stock market and, more importantly, a bond crisis, Trump “ announced a 90-day tariff “pause ”. Following a one-day partial rebound of the markets, the realization that a 10% initial tariff on all goods entering the nation, along with some larger tariffs on many nations, remained in effect, the markets continued their decline. The overall reaction, from even our closest allies, remains that there is no actual plan or projection of any end game to these actions.
The lack of a clear goal and the erratic on again off again behavior left the market, investors and consumers unconvinced that we will not experience the same chaos in 90 days. The suggestion that this was merely a negotiating ploy by Trump was not widely accepted. At the same time, the idea that this process will bring back manufacturing to America was also widely criticized by many companies. Indicating that a global manufacturing environment makes the construction of new plants too expensive and too long a process, many companies seem to be prepared to out-wait the Trump presidency. Equally baffling is considering tariffs as a great source of income from other nations. The receiving nation pays the tariff which is typically passed on the to the end consumer as a tax. The concept is that the reciprocal tariff will require other nations to pay us for their goods but the already existing trade deficit is likely to increase with these irrationally high tariffs with our consumers likely to be footing the larger tariff tax over time. This will be especially true if other nations seek other trading partners and we become more isolated in the world’s trading economy.
Historically, untargeted tariffs have not worked well. The Smoot-Hawley Tariff Act of 1930 is largely considered to have exacerbated the great recession. We are asked to trust this administration and endure this initial “economic pain” as the results are going to greatly benefit everyone. Hopefully, this time will be different but history does have a way of repeating itself.
With the above as a brief description of tariff background, how are the real estate and financing areas likely to be affected? Uncertainty is not a friend for those who are trying to scope out their future. Depending upon personal circumstances, this can be a good time to purchase, but many prospective home buyers remain on the sidelines, either due to persistent affordability issues or constrained by merely not knowing what to do. (See the interest rate comment below)
What About Interest Rates: Surprisingly, interest rates have remained mostly unchanged, adjusting for the most part within a narrow range, up or down on any given day. The media often exaggerates any adjustment, confusing consumers.
Predictions continue to change, sometimes on a daily basis. With predictions ranging from one to three and even five FED rate reductions yet this year it remains, at best, a guessing game. While most do not expect any FED action before their June and maybe July meeting, some are anticipating an “emergency” meeting reduction prior to the May 6-7 meeting. Lots of room for speculation accompanied by a changing economy and minds.
Plus, we have no idea what effect, if any, FED short-term rate adjustments might have on our long-term mortgage rates. So, before applauding possible multiple rate reductions, note that market chaos and unpredictability, perhaps followed by layoffs and stagnating wages, may not result in buyer confidence or greater buyer affordability. While predictions of a coming recession are growing and some believe we are already in a recession, it is likely a little premature for any actual confirmation. A “wait and see before acting” attitude usually prevails in this kind of atmosphere.
For those who want to know where rates are today, the rate for the “best” qualified borrower (20% down payment, over 760 credit score) is vacillating between 6.65 to 6.7%. Remember, those with less down payment or lower credit scores represent a higher loan risk and the rate can adjust slightly upward.
Home Values to Go Up: Among all of the economic uncertainty, the finance community expects home values to increase a modest 3.3% during all of 2025. Home values are likely to vary according to regions. Location, location, location remains the motto for establishing home sale prices. More immediately, amid the current economic uncertainty, we are unsure of the impact on the normal Spring selling season.
New Fire Hazard Maps: Cal Fire has posted on their website the new fire hazard maps. Go to osfmfire.ca.gov to find a wealth of information including the history of wildfires in California, how fire risk is determined and the science behind the fire hazard classifications. There is an address finder with which you can identify a particular home to assess its current classification (moderate, high or very high). Although there is information regarding how to “harden” a property for wildfire protection, we remain unsure how this might affect homeowner insurance costs for any specific parcel. The site can be a little challenging but it does contain a lot of information.
Fannie Mae Loses Staff: This Government Sponsored Entity (GSE) Fannie Mae had 100 employees terminated for “alleged” fraud. Fannie Mae (along with Freddie Mac) is critical for our mortgage process to function. Via purchasing the bulk of our nation’s conventional loans, they provide liquidity, allowing lenders to continue making loans. “Alleged” is the operational term since there seems to be no requirement to actually document the discovered fraud. This ability to discover mass amounts of unsubstantiated fraud (where no one else appears to have been successful) reminds this old person of the days when Senator McCarthy (1950’s) found a Communist lurking in every corner and behind every desk in Washington. He was ultimately disgraced as a fraud himself.
For those too young to remember, McCarthyism is the name of the period during which Senator Joseph McCarthy promoted the idea that our government was riddled with Communists. The term has since become synonymous with defamation of character and reputation via the use of unsubstantiated charges. Waving indiscriminate lists of supposed saboteurs, a blacklist was developed that ruined many innocent lives. Call me a suspicious cynic but history has a way of repeating itself.
Final Reminder: Our FREE Reverse Mortgage Forum will be held on Thursday, April 17th at our Humboldt Home Loans office from 2:30 to 3:45 PM. If you or anyone you know might be interested in how a reverse mortgage works, now is the time to register by calling 707-616-8160.
I Had A Dream: I generally don’t remember dreams but I felt that this one was worth sharing. It was a sequence of kind acts, each one resulting in the new recipient performing an act of kindness for another. It brought tears to my eyes in my dream. In a time when job losses are growing, assistance programs are eliminated, cost of living continues to increase and a general malaise exists, a random act of kindness can have extraordinary impact. Kindness is conveyed in simple gestures but can mean so much to the recipient. Plus, doing something unselfishly for someone else is a sure-fire antidote for feeling better if you are feeling a bit low, frustrated or “peevish” (as my grandmother used to say). It seems almost selfish to say that performing an act of kindness does as much good, and maybe more, for the giver as the recipient. With this thought, I close as usual with . . .
Until next week, be good to yourself and kind to others.
A WEEKLY GLIMPSE OF REAL ESTATE FINANCE NEWS
We at Humboldt Home Loans are always available to answer any of your real estate finance questions.
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