This Week In A Nutshell: Mortgage rates have been steadier for the last few weeks. But the risk of outsized mortgage moves remains as markets await the outcome of Iran war ceasefire negotiations.
Upcoming Attractions
This week is light on market-moving economic data, as we’ve now gotten the key labor market and inflation indicators for the month. The next Fed meeting is still two weeks away. We will get the producer price index (PPI) on Tuesday, which will help round out the March inflation picture alongside last week’s consumer price index (CPI) data.
Markets will continue to focus on any progress toward reopening the Strait of Hormuz. Currently only about a dozen ships per day are passing through, down from about 100 last year. Bond market volatility has declined sharply since late March, with current volatility more similar to late February/beginning of March. But significant news on ceasefire talks could still move rates sharply.
Last Week’s Highlights
We’re starting to see some of the expected effects of the Iran war in economic data. Overall inflation in the March CPI data spiked, but outside of energy prices and the most energy sensitive sectors (airfares), there was limited bleed through from the conflict so far. Consumer sentiment, measured by a University of Michigan survey, fell more than expected post-conflict to a historical low, while inflation expectations jumped sharply as consumers reacted to gas prices. The Fed is particularly sensitive to changes in inflation expectations, which they see as a self-fulfilling prophecy.
Importantly, consumer sentiment is seemingly reacting more to higher gas prices than the higher tax refunds consumers are also currently receiving. Finally, Chase reported that their credit card spending data for March indicates that consumers are not yet cutting back on spending. This may reflect higher tax refunds or consumers may simply be cutting back on savings for now. Research on prior episodes of gas price changes suggest that there should be a sizable response eventually, however, which should cause economic growth and the labor market to slow.
Diving a Little Deeper
We recently passed the one-year anniversary of Liberation Day (April 2, 2025), when President Trump introduced historically high tariffs. Both the Iran War and last year’s tariffs are what economists call stagflationary events–that is, they slow economic growth and spur inflation. In that vein, it’s helpful to reflect on what has transpired in the past year:
- Labor market: While economic growth remained healthy, the labor market slowed significantly to the point where some worry that we’re in a labor market recession. Notably, the economy has essentially created no new jobs in the last year. Much of this slowdown is because of new immigration restrictions, but tariffs also played a role.
- Inflation: Core inflation (which excludes food and energy prices) has remained relatively stable. Tariffs did drive the prices of goods higher, but service inflation came down offsetting much of that change. In addition, goods prices did not rise as much as feared initially as companies declined to pass some of the cost onto consumers.
- Mortgage rates: Mortgage rates rose initially on inflation fears post Liberation Day, but fell steadily starting in the summer as growth fears dominated inflation worries.
- Housing market: Home sales data, including the read for March released this morning, show that we continue to bounce along the bottom eerily similar to the past three years despite a nearly one percentage point drop in mortgage rates over the course of 2025 and more inventory in the housing market. The lack of response to lower mortgage rates coincides with the slowdown in the labor market over the same period and increasingly worse vibes among consumers.
Redfin Housing Market Reports
A Record 34% of February Home Sellers Cut Their List Price
- February home sellers who cut their price lowered it by $41,000, on average, or 7.3%.
- Home sellers in Texas and Florida were most likely to make price cuts, while sellers in the Bay Area were least likely.
Pending Home Sales Post Biggest Decline in 3 Months
- U.S. pending home sales fell 2.4% year over year during the four weeks ending April 5.
- Sales fell most in Providence, RI (-15.5%), Houston (-15.4%) and New York (-15.3%). They increased most in West Palm Beach, FL (20.9%), San Francisco (16.7%) and San Jose, CA (11.4%).
- On the selling side, new listings dipped 2.6% year over year, the biggest decline in a month.
