Mortgage Rates Hit 2025 Low as Recession Fears Rise

Mortgage ratesThere is so much happening right now in just the last couple of weeks. There’s just been a huge amount of important housing, economic and investor news coming out, and this is all stuff that you should be paying attention to, but I know realistically that not everyone has time to dig into the data and track all the important news. So I’m going to do it for you. In today’s episode, I’ll give you a rundown of the most important investor updates and help you make sense of what it means for you. Hey everyone, it’s Dave head of Real Estate Investing at BiggerPockets and welcome to On the Market. In just the last couple of weeks, we’ve seen a lot happen in the economic world. Mortgage rates have somewhat mercifully moved down to their three month lows. We’ve seen big shifts in consumer sentiment. We’ve seen tariffs announced federal job cuts and a lot more, and although realistically not all of this is directly tied to housing or real estate investing, obviously mortgages are, but some of those other ones are one or two steps removed.
But even so all this plays a really important role in the general investment landscape. So I’m going to use today’s episode to catch everyone up on what’s going on and we’re going to start with the big mortgage news, probably what everyone wants to hear first. The headline here is somewhat exciting that mortgage rates are down to a three month low. Now, I expect that a lot of people, if you listen to this show, you follow this stuff pretty closely, but in case you haven’t been paying attention, mortgage rates have been on somewhat of a roller coaster for really the last couple of years, but mostly since September of 2024. They fell for most of the first half of last year on expectations of fed rate cuts, and right before the first of those rate cuts that came in September, we saw mortgage rates almost down to 6%, which was pretty exciting at the time.
But then after that, over the course of the second half of 2025 and into January, mortgage rates just kept going up, but luckily, at least for now, they’ve peaked they were up to seven and a quarter 7.25%, which is pretty significantly higher than it was just back in September at 6%, but that happened back on January 15th and it’s fallen since then to just 6.75. Now of course, that’s still a lot higher than what we were hoping for and where we were in September and October, but this is positive momentum and I think it’s important to sort of break down why the pendulum of mortgage rates keeps swinging back and forth because as you’ve heard, my philosophy about the housing market and investability over the next year and maybe even further and beyond that is really all about affordability. How easily the average American can afford the average price home and mortgage rates are a very key component in that.
So let’s just break down some of the variables that are playing into these mortgage rate changes because all of the macroeconomic news, whether it’s fed rate cuts, consumer confidence, the labor market tariffs and inflation, all those things news that you should be paying attention to. Also things that play into the direction of mortgage rates. So let’s just break them down and figure out what’s going on with each of those variables that I just mentioned and where they might be heading. Before we do that though, let’s just get a little bit of context here. As I’ve said, mortgage rates, they’ve been going up and down for the last couple of months, and although the market reacts to tons of different economic news and data, there’s just this basic sort of battle or trade off that goes on with mortgage rates and it’s roughly between inflation fears and recession fears, and I’ve talked about a bunch on the show, but let just quickly remind everyone what’s going on.
Mortgage rates are not tied to what the Fed does. They’re related, but they’re much more closely correlated to the yield on the 10 year US treasury. That is basically a bond, and there’s all sorts of reasons to this, but you could just Google it. I’m not going to get into all the details, but they move very closely together. So when you want to predict what’s going on with mortgage rates, you really need to understand what’s going on with bonds and bond investors. They’re a very unique sort of group of people, but basically the value of bonds swings based on inflation and recession. Generally speaking, when bond investors in the market are more afraid of inflation, bond yields go up. That’s because they feel that the value of the dollars that they’re going to be earning on those bonds is going to go down in real inflation adjusted terms.
So in order to buy those bonds and lock up their money for years, they need a higher return that drives up yields and it drives up mortgage rates with them. On the other side of this equation or this battle is recession fears when there is generally a fear that the economy might contract, investors want to put their money somewhere safe, and bonds, particularly US treasuries, are largely considered the safest place you can put your money, at least in a broad macroeconomic sense, and that leads to more demand. More demand for bonds pushes up the price of those bonds and prices and yields move inversely so that sends down yields and takes mortgages down with them. I know there’s a lot there, but basically if you want the TLDR of what I just said, when inflation fears are dominating the day, mortgage rates go up when recession fears dominate the day mortgage rates go down, and if you’re wondering, are these two things mutually exclusive, can it be one or the other?
No, there is something called stagflation where you get both inflation and recession, but generally speaking, inflation is seen as an overheated economy that can happen from labor shortages, too much money printing, supply side shocks and recession’s the opposite. It is a cool down market, and so that’s why the market generally swings back and forth based on whether they’re thinking inflation or recession are most likely. So back to our story about what’s going on with mortgage rates. For much of the period between the election and the inauguration, inflation fear was basically winning this battle and there is a good reason for that fear because the inflation data was going up. We measure this a couple ways in the United States, either by the CPI or the PCE, and both of them have gone up over the last couple of months. Now, it’s important to understand and discuss context and scale here because it’s not like they’ve gone up a ton.
They’re still around 3% roughly, so it’s not like we’re back up to the 6, 7, 8, 9% that we saw in 2021 or 2022, but it is notable that it is a reversal of a trend. We were seeing these long term declines since about January of 2023. The changes haven’t been that good. Inflation hasn’t been going down that much, but they’ve been going down little by little. Now they’re going up little by little, so that alone can cause the market to react and can push mortgage rates up. The other thing that’s going on though is probably due to tariffs because as we’ve discussed on the show before, tariffs are generally seen as causing at least one time inflation when imports cost more. Those costs are generally passed on to consumers and there is a one time inflationary effect. Now, if you’ve been paying attention to the news, you know that tariffs are pretty uncertain still.
President Trump had announced and implemented tariffs on Mexico and Canada, then those got paused, but as of now, they’re set to go back into place. On March 4th. A couple of weeks ago, president Trump and his administration implemented 10% tariffs on all goods coming from China and just today, February 27th when I’m recording this, they announced another 10% tariff on goods coming from China. So that’s up to 20%, and this hasn’t yet, at least in my mind, led directly to inflation, but the markets react to inflation expectations, right? They’re not going to wait around for that inflation to hit if they’re fearful of inflation that can send up mortgage rates all by itself. And there is data that shows that the average American does think that inflation’s going to go up. If you look at, there’s something called the conference board. They do all these surveys and they poll for inflation expectations, and they’re showing that the average 12 month inflation expectations went up in February from 5.2% to 6%.
So again, not huge, but it’s enough to move mortgage rates in away that probably most real estate investors don’t want to see. Now, we’re going to talk a little bit more later about what we expect to happen in the future, but I just want to take a minute and say, as we’ve seen what is proposed or announced in terms of tariffs is not actually what always happens. We’ve just seen that Trump has often used tariffs as a negotiating position, and what ultimately happens is still up in the air. But just generally speaking, when it comes to economic news and markets, they’re very spooked by uncertainty. And in my mind, the uncertainty about tariffs alone is probably what had been driving up inflation fears through January. Again, that is what drove up mortgage rates for a while. That’s why they went up to 7.25%. One of the other things that sort of happened during this period was reduced expectations of fed rate cuts back in September.
Remember I was saying that mortgage rates dropped to about 6% back in September At that point, there’s all this data that shows what the markets expect to happen and bond investors and markets were expecting that in 2025, we were going to have four rate cuts of 25 basis points, so they basically would come down a full percentage point in 2025. If you fast forward to January, those expectations had been cut in half down to just two rate cuts over the course of 2025, and that’s probably another reason that bond yields started to move up. But as I said at the beginning of the show, now rates are coming back down. Everything I was just talking about was reasons that rates were going up and they spiked to 7.25% in January, but why are they coming back down now? We’ll get to that right after this break, everyone.
Welcome back to On the Market Today. I am doing my best to catch you all up on the just huge amounts of economic data and news that has been released over the last couple of weeks and help you make sense of it in the context of real estate investing. Before the break, I was talking about how inflationary fears were sort of ruling the day in November, December, January, as a lot of the market was reacting to recent inflation data and uncertainty about the direction of tariffs. What has changed then to drive down mortgage rates from 7.25% to 6.75% in just a couple of weeks, a relatively rapid move. Well, if you go back to sort of that battle between recession fear and inflationary fear that I was talking about before, it seems that the recession fear camp group of people is starting to gain some steam.
Now, that doesn’t necessarily mean that that is the predominant belief in the market, so make sure that you understand that. It just means that the overwhelming consensus that inflation was a big problem is starting to break, and there is some, it could be even seen as optimism that we’re going to have a soft landing or it could be seen as recessionary fears. Basically, there is less fear of inflation right now, and there’s a couple of reasons for that. The biggest news that I markets have reacted to has been consumer confidence surveys, and there’s actually two of them I mentioned before. There’s one that’s done by the conference board. There’s another one done by the University of Michigan, but it actually, if you look at both of them for January and February, the data is not exactly the same. They have different methodologies, but they look pretty similar in terms of trend.
And what it shows is the biggest monthly drop in four years, it had a 4% month over month drop from January to February. You could go look this up if you want to check it out. It’s pretty interesting to look at Consumer Confidence Index or U Michigan survey. But the reason that this matters and the reason that markets are reacting to this is that consumer confidence and consumer behavior really is hugely important to the American GDP. We talk a lot about government spending, about business spending, but the fact of the matter is that 70%, seven 0% of gross domestic product of GDP in this country is from consumer spending. What you, me, your neighbors and your friends spend on money each and every month, and the level of confidence that consumers have in the economy can actually be predictive of how much they’re going to spend in the future.
So if you see these indicators of consumer confidence going down, that could mean that consumer spending, again, the majority of our GDP in this country could go down in the near future. So that has spooked markets generally because a lot of stocks are based on earnings and if retailers or different companies are going to get less revenue, that could hurt the stock market. It could hurt GDP, it could send us into a recession. There’s been a lot of data, but honestly, this data to me is what the market is mostly reacting to. After this news came out, we saw the stock market sell off about 4%, which is very considerable. Well, it was 4% between February 17th, the most recent peak and February 27th when I’m recording this. But that is a pretty significant sell off for the stock market and this all on its own. This stock market sell off can bring down bond yields.
Often when the stock market sells off, people are selling their stocks, but they have this money and they need to put it somewhere, and oftentimes they put it into bonds. Remember when I said earlier that when there are fears of recession or just generally the economy slowing down or there’s fear that there’s a lot of risk of a correction in the stock market, investors will take their money out of the stock market and they’ll try to put it somewhere safer, which for most stock investors, they don’t all invest it in real estate like we do. A lot of them move it to bonds. And again, this drives that dynamic where demand for bonds goes up, which lowers yields, brings down mortgage rates since the two are so closely tied. The other economic news that has sort of soured markets a little bit is the labor market.
And this is hugely important because the Fed looks really closely at the labor market, but obviously so do investors in both bonds and stocks. And what we’re seeing is an uptick in unemployment claims. And there are tons of different ways that you can measure the labor market, and I absolutely admit none of them are perfect, but initial unemployment claims to me is one of the more reliable metrics. It basically measures how many people file for unemployment insurance and benefits for the first time. There’s another metric called continuing claims, which shows how long people stay unemployed for, but this metric just shows how many people were laid off and are filing for unemployment in a given week, and it shot up as of today to 242,000. Now, it’s important to note that in context that is not massive, but it was higher than expectations and is about a 10 to 15% increase over where it’s been over the last couple of weeks, which is a very big jump in one week.
Now, I always want to caution one week does not make a trend. We can’t base investing decisions or anything else based off one week of data, but that’s us as real estate investors. The stock market sure reacts that quickly and so does the bond market. They are very sensitive to this type of news. Personally, I like to wait to see if these trends continue for several weeks or several months, but I’m just trying to explain what’s going on with the bond market and stock market right now. And to me, it’s this combination of declining consumer confidence and an uptick in initial unemployment claims that are leading to that. I should mention too that many of the unemployment claims are coming from pretty high profile and high paying jobs. We of course, are seeing federal layoffs, and that’s contributing to this for sure, but it goes beyond that. It’s also companies like Meta, Starbucks, Microsoft, Salesforce, Chevron, the list goes on. There are a lot of tech focused jobs, high paying jobs that are combining with some of those federal jobs to lead to these declines. So to me, these are the reasons that rates have come down over the last couple of weeks, but what does this mean for real estate investors? Is this going to continue? What does it mean for the future? We’ll get into that right after this break.
Hey everyone. Welcome back to On the Market. We are here talking about economic news and before the break, we had talked about why rates had dropped over the last couple of weeks, and just as a summary, I think it’s because the market is reacting to lower consumer confidence and modest upticks in the initial unemployment claims, and that has driven down mortgage rates, which for real estate investors is somewhat encouraging. So where do we go from here? That is sort of the question, right? I guess this is probably not what people want to hear, but personally my big takeaway is that I just think it’s going to be hard to expect anything other than volatility in the coming months. There’s just too much uncertainty right now, and this I think is generally true across most asset classes. When I think about the stock market, I’m expecting volatility when I look at the bond market and therefore mortgage rates, I am expecting volatility there.
I think even the indicators that dictate these things like consumer confidence are going to be volatile. I think unemployment claims are going to be volatile, and I don’t see a clear path to that volatility ending in the near future. Now, when I say near future, I’m not saying years. I’m saying probably at least the next couple of months because there are a lot of different things leading to this volatility. First and foremost, there’s just a ton of geopolitical instability and tension right now. And again, the markets are very sensitive to these types of things. The other sort of obvious thing is we all don’t know exactly what the shape and size of many of Trump’s economic policies are going to be. President Trump campaigned on a lot of big different economic policies implementing them, and he’s starting to put those into place, but many of those are still largely undefined.
Just for example, we are still waiting to hear the exact extent and details of a very big tax cut plan. There were some preliminary stuff that passed the house, but we don’t know exactly what the final bill is going to be and the outcome of that bill has huge implications for the economy. So that’s just one example, but until we know what that looks like, it’s going to be hard for this volatility to subside. We also don’t yet know about tariffs because we’ve seen the pendulum swing back and forth there. Trump is known to have used tariffs and is probably continuing to use tariffs as a negotiating position. So the final amount, the final scope of tariffs are uncertain, and I think the markets are going to be very sensitive to changes and news about terrorists for the foreseeable future until that news and uncertainty starts to come down.
That is also true for federal spending cuts that we’re seeing from the Department of Government efficiency or Doge. We might hear the government introduced new spending priorities, we just don’t know. And until we know more, it’s going to be volatile. And as an investor that’s pretty tough because volatility and uncertainty make it harder to make sound investing decisions, but I think there are still absolutely ways to move forward as a real estate investor. And here are a couple of things that I would recommend. First and foremost, if you are looking to buy lock-in rates when you can, because we just don’t know if rates are going to go much lower, I think it’s going to be very difficult to time the market. There is not enough reliable momentum in any one direction. And if it were me and I were looking for a mortgage right now, I would try and lock in rates like today.
They could go back up. Sure, they could go back down, but to me getting a rate lock in at 6, 7, 5 right now before they potentially go back up would be worth it. So that’s one thing you should consider. The other sort of bigger, more existential question for real estate investors is does all this uncertainty and volatility make it a bad time to buy? Well, generally speaking, I think my forecast for 2025, the things that I’ve been talking about over the last couple months is still mostly true. I think it’s holding. I’m not really changing what my expectations are for the year. And just as a reminder, my expectations were mostly flatness. I think housing prices might go up a little bit in nominal non inflation adjusted terms. When we look at real housing costs when we compare them to inflation, I think they might decline just a little bit.
Not talking about a crash, I’m talking when we talk about inflation adjusted maybe one, two, potentially 3% decline. So nothing crazy. I would generally characterize the majority of housing markets to be close to flat 4, 20, 25, and I think rents are going to be mostly the same. Rents on single family homes are up a little bit, but I think they’re going to remain soft. So overall, it’s not really the most exciting market, but there is some good stuff happening for investors. Inventory is rising, and I think that’s generally good news because it is shifting the market from what has been a very solid, consistent seller’s market to one where buyers have more negotiating power. And I want to be clear, I’m not saying go out and buy just anything. There’s going to be a lot of bad deals on the market. There’s going to be a lot of junk, but there will still be good deals because we’ll probably see some more motivated sellers.
And for that reason, I am still looking at deals all the time. I’ve made a few offers this year. Nothing has penciled just yet, but I am still looking. If you’ve listened to the BiggerPockets podcast, I talk about this a lot, but I’m just trying to focus on long-term value rather than what’s going to happen in the market in coming months because that is obviously unknowable and I just said there’s a lot of volatility. So I’m looking for deals that I feel confident no matter what happens this year, no matter what happens next year, that’s going to be a good appreciating asset that produces cashflow two years from now, three years from now, 10 years from now, I still think those deals are available, and I actually think over the course of 2025, those deals are going to become more available. And I know that requires a little bit more guts and a little bit more risk tolerance, but it is these types of markets, generally speaking, that produce really good returns for people.
So I recommend continuing to study your market, continuing to be a diligent investor to negotiate and to look at deals because I think there are going to be good solid returns to be found this year. You just have to be persistent about it. That’s my take on the situation, but obviously things are changing really, really rapidly. Let me know if you like this type of show, because if you do, we can make more of these types of update shows to help you stay on top of really breaking news macroeconomic summaries. I’m happy to keep making these. Let me know either on Instagram, where I’m at, the data daily or on BiggerPockets if this is helpful, or if you’re watching on YouTube, just drop it in the comments. That’s our update for today. Thanks for listening.