The U.S. economy has faced mounting challenges since the beginning of the new administration, with signs of strain appearing in the labor market, trade policies, and most notably, the housing sector. While U.S. employers added 151,000 jobs in February, unemployment edged up to 4.1%, according to a recent report from the California Association of Realtors (CAR).
The hiring pace represents a slowdown from the previous monthly average of 200,000 jobs since December, raising concerns about economic momentum amid broader uncertainties, said the report.
Despite the modest job gains, economic instability has been exacerbated by shifting trade policies. The announcement of 25% tariffs on Mexico and Canada on March 4 sent shockwaves through the stock market before exemptions for automakers and goods covered under a 2018 trade agreement were introduced. These abrupt policy changes have fueled market volatility and deepened economic uncertainty, further complicating the landscape for businesses and consumers alike.
The U.S. housing market has borne the brunt of the economic downturn, with affordability concerns persisting due to elevated mortgage rates and stagnant wage growth.
Mortgage rates, while recently declining, remain high compared to historic lows seen in 2020 and 2021. The California Association of Realtors (CAR) reports that these conditions have significantly dampened homebuyer sentiment and reduced purchasing power.
The latest Home Purchase Sentiment Index (HPSI) from Fannie Mae illustrates the decline in confidence. For the first time since 2023, consumer sentiment about the housing market has dropped year-over-year. A surprising 76% of respondents believe it is a bad time to buy a home, said the report, largely due to high prices and limited inventory, while only 24% see it as an opportune time to purchase. This reflects growing frustration among potential buyers, many of whom remain priced out of the market.
With mortgage rates experiencing a modest decline, said the CAR report, homeowners have rushed to refinance, taking advantage of slightly lower borrowing costs. According to the Mortgage Bankers Association (MBA), the Refinance Index has reached its highest level since October 2024. Refinancing activity soared by 37% in just one week and is up 83% from the same period last year. Government-backed loan refinances increased by 42%, while conventional loan refinances rose by 34%.
However, despite the recent surge in refinancing, overall activity remains far below the peaks of 2020 and 2021, when mortgage rates were at historic lows. Additionally, while purchase mortgage applications saw a modest 9% uptick, affordability remains a major hurdle for first-time buyers. Rising home prices, coupled with elevated interest rates, continue to weigh on home sales.
Looking ahead, economic uncertainty is likely to persist as businesses and consumers navigate a volatile financial environment. The housing market remains a focal point, with affordability challenges and high borrowing costs limiting accessibility for many Americans. Forecasts from Fannie Mae suggest that home sales will remain sluggish throughout 2025, barring a significant shift in economic conditions or a more substantial drop in mortgage rates.
As the U.S. grapples with inflation concerns, trade uncertainties, and fluctuating interest rates, the broader economy remains in a precarious state. The California Association of Realtors underscores the need for targeted policies to address housing affordability and supply constraints, which continue to hinder market recovery.
