[Julio Munoz]

What is going on with the housing and mortgage markets? Is it a good time for first-time homebuyers to buy a house? Are home prices tanking and mortgage rates surging? Is inflation still going up, and the economy in shambles? Why would President Donald Trump tell Americans to buy stocks last Thursday, and the stock market skyrocket yesterday, surging over 1,100, when everyone knows that the stock market is very volatile and overvalued? What is President Donald Trump trying to do? The stock market is by no means valued at 43,000. No way. There may be layoffs coming and revenues falling, which means many companies will lay people off, and many may face bankruptcy.

[Lisa Jones]

Hey, Julio, the economic and stock market changes caused by Trump’s statements have created much buzz. This is particularly interesting in the context of housing and mortgage markets, inflation, and other related factors. This analysis will address your questions and concerns regarding first-time homebuyers, the overall housing market, and Trump’s reasoning behind his actions. To complete the stock market picture, I’ll also discuss the skeptical views about its valuation and the potential layoffs and bankruptcies.

What is Happening in the Housing and Mortgage Markets?

Current Trends in the Housing Market – May 2025

Pricing of Homes:

Prices are still growing, but at a tempered rate relative to the existing pace. As of January 2025, the median sale price of existing homes was 396,900, a 4.0 percent increase from the previous year. Although prices continue to grow, the pace is much more subdued vis-à-vis the double-digit growth rates during the pandemic. Increasing prices and moderately strong demand due to a persistent supply shortage of nearly 5 million homes will drive prices up by 2-3% annually through 2029. There are regional variations, too. The South and West have stronger construction than the Northeast and Midwest, which remain supply-strained.

Housing Supply:

Although supply remains low, the inventory is improving. As of March 2025, there was a 4-month supply of homes, which is still lower than the 5-6 months required for equilibrium, but is a 19.8 percent increase from last year. Till then, prices will continue to enjoy upward pressure due to suppressed supply. Demand continues to exceed supply, but many homeowners are locked into low mortgage rates from years past (for example, 3-4% rates) and are reluctant to sell in a higher rate environment.

Housing Construction: Home construction is a bright spot, likely adding 1.1 million homes in 2025, a rise of 13.8 percent from 2024.

These homes are more compact and geared towards new buyers, especially in the Sun Belt (Texas, Florida, Arizona). To some extent, Trump’s tariffs on lumber (like 14.5% on Canadian Imports with a potential increase to 40%) would also slow construction while raising prices anywhere from $9,200 to $25,000, raising building costs.

Mortgage Market Trends May 2025: Mortgage Rates:

They’re not surging, but mortgages are still holding at a heightened level. The average 30-year fixed mortgage rate as of late April 2025 sits at 6.86%, slightly lower than earlier in the year’s peak of 7%. Forecasts suggest they will hold between 6.3%-6.7% throughout 2025, with a potential drop to 6.2% and 6.4% by the end of the year in the event inflation cools and the Fed cuts rates even further. Fed’s ability to influence the economy is currently restrained due to the growing economy and inflation fears stemming from tariffs, which also command a stronger 10-year Treasury yield.

Impact of Tariffs:

Trump’s 10% blanket import tariffs have raised prices, fueling inflation and retaining a high mortgage rate. On the other hand, tariffs that are intended to curb economic growth will lower treasury yields, effectively lowering mortgage rates. The overall net impact remains uncertain but suggests leaning towards enduring high mortgage rates.

Demand:

Staggering prices and high rates took a toll on demand for existing homes, bringing sales down to a seasonally adjusted rate of 4.26 million in February 2025. This is an increase of 4.2% for siblings month-over-month but remains stagnant at 30-year lows.

First-time buyers face an affordability limitation: 75% of households cannot afford a newly constructed median-priced home.

Key Driver:

The main contributing factor is the “lock-in effect,” where homeowners wanting to hold onto their low-rate mortgages do not list their homes for sale, coupled with low housing inventory. This leads to prices remaining high while mortgage rates further worsen affordability. Volatility in construction prices due to increases from inflation caused by Trump’s tariffs also negatively impacts the market.

Analyzing 2025 Predictions for First-Time Buyers

Mapping out a first-time purchase in 2025 is tricky. However, the underlying conditions are far from bleak. Here’s a breakdown:

The Struggles:

Stressful Levels of Affordability:

Homes are projected to sell at an all-time high with a median listing of 418k and a fixed 6.86 mortgage rate. Monthly payments are bound to be steep, totaling more than 2,400 for a 400k home. At a 7% interest rate, the balance due each month would be ~$1,200 more per month compared to a 2% rate.

Inventory Competition:

Though the inventory available remains scarce, bidding wars have cooled down since the pandemic ended, which is an upside. As a result, many markets are still competitive, unlike the influx of inventory witnessed during the pandemic.

Policy Control Gaps:

Restricted immigration policies combined with proposed tariffs could raise the cost of building and decrease the number of construction workers, significantly impacting supply and affordability.

Possible Benefits:

Rising Construction Inventory:

Newly constructed homes are being targeted towards first-time homebuyers, improving inventory overall. This is especially true for the Sun Belt regions, which are in more demand. There is now a four-month supply compared to last year.

Reduced Growth in Pricing:

The increase in pricing is estimated to stagnate even further compared to previous years, which is likely to lower the risk of purchasing a home. A 2 – 3 % growth is expected.

Increased Wage Growth:

In the context of purchasing power, it is beneficial as home price growth is offset by growth in nominal wages. Thus making housing slightly more affordable.

Look Outside of Big Cities:

Zillow’s 2025 hottest list states that markets like Buffalo, Indianapolis, and Kansas City are less competitive and more affordable.

Tips For First-Time Buyers:

Financial Health:

Make sure you have no debt, save a 5-20% down payment (20% avoids PMI), and can pay the closing costs. You can get better rates if your credit score is above 620, especially around 700+.

Stop Trying to Time the Market:

If you’re looking to buy for the long term (5-10 years), waiting for lower prices or rates may not be worth it since real estate tends to appreciate over time. As David Sidoni puts it, “economic noise” shouldn’t keep equipped buyers on the sidelines, especially with persistent supply-demand imbalances. Prices do not just crash.

Don’t Go It Alone:

A real estate agent could also provide insight into local trends and help find “less competitive” markets.

Check For Aid Programs:

Search Business Insider and similar outlets for down payment assistance or affordable mortgage programs.

It is not ideal considering the current economic context. However, concurrently targeting affordable markets, planning to stay long-term, and being financially prepared does make it a good time. A crash seems unlikely, as prices remain high amidst low supply, tighter lending conditions, and stricter standards compared to 2008.

Are home prices tanking and mortgage rates surging?

Home Prices: N/A

While prices have risen by 4% year-over-year, growth is expected to slow down to approximately 2-3% in the coming years, lasting until 2029. A low supply coupled with steady consumer demand prevents prices from declining. However, modest price reductions are likely during a recession.

Mortgage Rates:

Not increasing. Current rates remain high, with a 30-year fixed mortgage at 6.86%. However, if inflation alleviates, predictions show rates stabilizing or improving to between 6.2% and 6.7% by the end of the year. While tariff-induced inflation might keep rates high, a recession could provide relief.

There is no forecast for a price jump or drop. Overall, the market is sluggish but stable, and there is no expectation for improvement in affordability any time soon.

Inflation and the Economy: Still Rising, in Disarray?

Inflation (May 2025)

Current Rate:

According to the Consumer Price Index (CPI), inflation eased to 2.4% year-over-year in March 2025, down from 2.8% in February. Core inflation (without food and energy) sits at 2.8%, above the Fed’s 2% inflation target.

Trump’s Policies:

Tariffs (10% on all imports, higher for Canada/Mexico/China) will likely increase inflation by 0.6 percentage points in the short run, possibly bringing CPI to 3% or more. Deportation policies would increase the construction labor shortage, elevating construction costs.

Outlook:

Inflation appears to be easing but remains sticky. The Fed is projected to cut rates twice in 2025, which may keep borrowing costs high.

US Economy (May 2025)

Performance:

The economy is not in shambles but rather in resilient shape. Q3 2024 GDP growth was 3.1%, alongside consumer spending and exports. Slower growth for 2025 is observed at 1.5%- 2%, alongside a cooling labor market. Unemployment is projected at 4.1%, slightly increased.

Concerns:

Implementing trade tariffs may slow growth and worsen inflation, triggering a recession. Strain from deportation policies on the agriculture and construction sectors may hurt those industries more. These changes impact workforce sustainability.

Job Market Update:

Nonfarm payrolls rose by 151,000 in February 2025, lower than expected, which indicates that demand is cooling.

Yet, no extensive breakdown can be observed.

Summary:

The economy is expanding, although there are looming risks associated with tariffs. Inflation is above target but not out of control, and a recession remains possible, but not definite, as the economy demonstrates resilience.

What Is Trump Doing Now? Stock Market Comments And The Surge.

The Reason Behind Trump’s Statement made on May 8, 2025:

As reported, Trump encouraged Americans to purchase stocks (this was either a post on Truth Social or a public statement; the exact articulation is unavailable) on May 8, 2025. This came after his February 12, 2025, post stating tariffs will allow for lower interest rates.

After a tumultuous week in which the market had over a 2,000-point drop due to fears surrounding tariffs, on May 12, 2025, the Dow Jones saw a surge of over 1,100 points. Shortly after a week of volatility, including a 2,000-point drop due to tariff concerns.

Why Did Trump Make The Statement?:

Boosting Confidence

A pillar of Trump’s economic strategy includes projecting power and encouraging stock purchasing. This counters recession fears and negative sentiment from the market dip due to tariffs. His “Liberation Day” tariffs (10% on all imports) spooked market constituents, resulting in a 6% dip in the S&P 500 in the first week of April. He hopes to fuel consumer confidence and drive investment by promoting stock purchases, which are vital to keeping the economy chugging.

Policy Narrative:

His primary narrative is that tariffs will lead to lower interest rates, claiming they will pay for tax cut spending and inject stimulants into the economy. The May 8 statement was meant to affirm this fueled growth narrative by framing tariffs as growth-friendly policies.

Political Optics:

AI detection tools indicate “Political Optics” corresponds with the first sentence. Noted that “in 2024 housing affordability emerges as a pivotal voter priority,” Trump attempts to assure citizens that his regulations of doling out tariffs, tax cuts, and deregulations will result in some level of prosperity for the country down the line.”

What Caused The Market Surge On May 12?

Rebound Effect:

The 1,100-point Dow surge reflects bargain-hunting and recovery from the fall due to tariffs. After the Dow suffers from a tariff-induced selloff, it is not rare to see markets recover due to investor risk reevaluation. The surge also displays hope that the feared impact of tariffs will not come to fruition, which was the case with Canada’s lumber not receiving an additional 10% tariff increase.

Trump’s Influence:

Trump moving the market with his bullish discourse is not uncommon; the same reasoning was applied for the past “Trump bumps.” His comments are normally perceived as policy changes or Fed rate pressure to relax rates.

Economic Data:

Consumer spending remained steady, and a strong Q3 2024 GDP of 3.1% helped bolster Confidence even amidst tariff concerns.

Is 43,000 an Overvalued Market?

43,000 does seem excessive for the Dow to rest on, but your skepticism is justified. Take the Shiller P/E ratio for example, sitting at 35, where the historical average is 17, suggests stocks are overvalued. That said, though: Earnings Growth:

With bottom line option numbers for the S&P 500 rising 7% in 2024, Nvidia and Apple, which are also seeing an increase in their stock prices, benefit the index’s growth.

Low Rates Historically:

Post-2008, near-zero interest rates boosted asset prices. Currently, 6% and 7% rates stand well below the 1980s peak, which helps maintain high valuations.

Sentiment:

Trump’s business-friendly policies, such as tax cuts and deregulation, increase optimism and push markets higher irrespective of fundamentals.

Counterpoint:

While high valuations may not indicate an impending collapse, volatility does exist. In April, 3,000-point swings were witnessed. However, no distinct bubble can be tracked.

What’s Trump Trying to Do?

Trump’s policies attempt to showcase fiscal strength and reserve consumer confidence while stimulating voter confidence. He trims spending via tax cuts, deregulation, and tariffs labeled as revenue streams. His stock market cheering is intended to offset tariff fears and promote consumer spending and Confidence. Critics claim the tariffs risk inflation and recession, undermining Trump’s narrative.

Layoffs and Bankruptcies: The Coming Storm?

Layoffs:

Current Data:

Nonfarm payrolls in February 2025 were 151,000, stagnating and lower than expected, unemployment holding steady at 4.1%. Federal government layoffs linked to Trump’s restructuring cuts around HUD staffing up to 50% also happened in early 2025.

Tariff Impact:

Trade wars could soften employment in highly impacted regions like manufacturing and agriculture due to higher cost structures, reducing international sales. No mass layoffs have been confirmed, but a recession would increase the chances.

Outlook:

The labor market shows signs of cooling but remains stable. If tariffs trigger an economic slowdown, layoffs will increase. However, the sharp rise in spending and GDP growth mitigates the risk.

Bankruptcies:

Current trends:

No surge in bankruptcies is recorded.

In 2024, defaults from corporations emerged from small retailers and cap-sized firms. Meanwhile, larger firms continued to thrive due to healthy earnings and significant cash reserves.

Risks:

Stricter tariffs could harm smaller capital firms that rely on overseas imports due to increased costs and narrow profit margins. While a recession would primarily affect over-leveraged corporations, corporate America’s post-2008 recession has seen stricter regulations that strengthened balance sheets.

Outlook:

There’s a possibility of an economic standstill, but rising bankruptcies due to stagnation in economic growth aren’t likely. Moreover, there is no evidence of a repeat crisis similar to 2008. Most firms are coping, even though high interest rates (with Fed funds at 4.25-4.5%) are weighing down weaker firms.

Verdict:

While the outlook remains doom and gloom with the rise in layoffs and bankruptcies, the immediate crisis still rests on the sidelines. The US economy can still weather a storm (3.1% GDP growth, low unemployment).

Critical Perspective

The baseline narrative optimistic estimates of GDP, stable markets, and the absence of a recession also miss many risks. Tariffs may impede supply chains more than foreseen, construction worker deportation policies may spike housing costs by crippling construction labor, and stock prices reveal only a fraction of economic health. If they fail, trump stock-buying call may jeopardize trust in public bailouts, and only buy for petty political reasons. First-time buyers will not face a 2008-style market crash due to tighter lending standards, but should be prudent not to overpay for supply-constrained homes.

Summary

Housing/Mortgage Markets:

Prices are not crashing but modestly increasing by four percent. The rate remains relatively stagnant at a high 6.86%, not surging. Affordability is difficult due to low inventory and tariffs.

First-Time Buyers:

Don’t wait for a non-existent crash because no crash is on the horizon. If financially prepared, it is manageable to buy while targeting affordable regions and a long-term plan.

Inflation/Economy:

Inflation sits at 2.4%, which is cooling, but still poses risks from tariffs. While not in shambles, the economy is growing at 3.1% GDP, but comes with looming recession risks.

Trump’s Stock Call:

He is lifting Confidence to offset fears of tariffs and maintain his image as a pro-growth President. The surge on May 12 of 1,100 points reflects his influence and dynamic rebound effects. However, 43,000 seems frothy to me, only sentiment and tech-driven. Layoffs/Bankruptcies:

Growth slows due to tariffs, but there has been no widespread calamity. The workforce and businesses are managing.

Your Next Steps:

Users: If you want to spend, get pre-approved, and search for homes within your budget range.