When asked Sunday on Fox News if he was expecting a recession this year, President Donald Trump wouldn’t rule it out. “I hate to predict things like that. There is a period of transition because what we’re doing is big.”
The markets on Monday were not impressed.
Largely because of President Trump’s on again, off again Tariff announcements, cancellations and threats, the financial markets have experienced heightened volatility and uncertainty over the last two months. This uncertainty has accelerated in the last three weeks, and culminated in a market rout on Monday (the time of this column’s writing).
In just one day, the Dow closed down 2.08 percent, the S&P 500 plunged 2.7 percent and the NASDAQ was down 4 percent, its worst single day drop since September 2022.
The NASDAQ moved comfortably into correction territory on Monday, defined as a 10 percent drop from its recent high and was racing closer to a bear market (20 percent less than its recent high). Everyday Americans have felt the effects of this new environment of market uncertainty in their retirement and 401k accounts. All of the above is, obviously, not so great news.
Fear about the inflationary effects of tariffs and the rising costs for staples like eggs have also made consumers, businesses and financial markets less confident in the United States economy. Markets and business leaders crave stability and predictability, and the current policy environment is providing uncertainty and anxiety. The leading economic indicators are not encouraging and they were measured before the market rout of the last few weeks.
The Conference Board’s Consumer Confidence Index for February, fell to 98.3, falling for the third-straight month and marking the largest monthly decline since August 2021. The Expectations Index, which measures consumers’ short-term outlook for income, business and labor conditions – dropped 9.3 points to 72.9. Results below 80 usually signal a recession ahead. Sixty-seven percent of the 33 million respondents said that the US was likely or very likely to experience a recession over the next 12 months.
In January, consumer prices climbed at the fastest monthly pace since August 2023, increasing 0.5 percent from December. Fed Chairman Jerome Powell indicated that the Fed would take a cautious and patient “wait and see” approach before considering the resumption of interest rate reductions, stating “We do not need to be in a hurry, and are well positioned to wait for greater clarity. Policy is not on a preset course. If the economy remains strong but inflation does not continue to move sustainably toward 2 percent, we can maintain policy restraint for longer.” It doesn’t seem likely that interest rates will be declining any time soon.
However, not all of the economic news has been bad news in our local real estate market. The latest economic shocks have caused the yield on 10-year treasury securities to drop from 4.79 percent on January 13, to 4.16 percent on March 3. Although we all track what the Fed Board does with overnight borrowing, mortgage rates are actually correlated to the 10-year treasury rate. The deterioration of treasury yields actually helps home shoppers.
The average 30-year fixed mortgage rate has decreased to 6.31 percent as of March 8. As a reference point, Jan. 16 the rate was 7.04 percent, and on Sept. 26, 2024 it was 6.08 percent. Nationwide, mortgage applications rose 20 percent last week from the week prior. If borrowing costs continue to drop, more people who want to move but have been waiting for rate drops will sell their homes, and the local market will become more liquid.
Additional encouraging signs can be found in East Aurora and Elma, where this year we’ve had 30 new listings through January and February, as compared to 16 during January and February in 2024. That’s a very small sample size, but it is encouraging. Declining mortgage rates would help to accelerate that process, but I expect we will experience more volatility in the intermediate term. Ultimately, it would be best if the market moves toward equilibrium, where supply and demand are in balance. The hope is that the market eases into a situation where home buyers can more easily find their perfect home, and sellers can swap their existing homes to accommodate changes in their housing needs without being punished by higher mortgage rates.
That’s a lot of information to digest. We have clients who are asking us if it is a good time to buy or sell. The truth is that it is. People still need to buy and sell for whatever reason. Interest rates have dipped these last few weeks. It’s impossible to know what lies ahead but current market conditions shouldn’t prevent you from finding a housing situation that works best for you and your family. And although I expect that we will be in for more of the same in both financial markets and our local real estate market, here’s hoping for smoother sailing ahead.
