Inflation Sticks, Growth Slows
The U.S. economy continues to send mixed signals, leaving both investors and real estate professionals with plenty to watch. The Fed’s preferred inflation measure—the Core PCE index—came in at 2.8% year-over-year for February. That’s the same level we’ve seen for the past 12 months, underscoring how stubborn inflation remains. Despite this, the Fed lowered its economic growth forecast for 2025 to just 1.7% and continues to project two rate cuts by the end of the year. This tension—between persistent inflation and slowing growth—is shaping how interest rates and, by extension, the housing market are moving.
Why Are Rates Falling Despite Sticky Inflation?
Treasury yields have been moving lower, particularly in longer-term maturities. The 10-year Treasury yield is now at 4.16%, its lowest point since mid-October. Interestingly, this drop in yields is occurring even as inflation remains elevated. What’s driving this? Market expectations of slower economic growth are part of the answer, but so is a flight to safety amid ongoing geopolitical instability. U.S. Treasuries continue to serve as a global safe haven, drawing investors and pushing down yields.
Mortgage Rates: A Period of Calm
Mortgage rates mirrored the drop in Treasuries earlier this year, falling sharply in January and February. Since then, the market has entered a holding pattern. March saw very little movement, but the key takeaway is that rates are now at their lowest levels since last fall. Most major benchmark rates, including those published by Freddie Mac and Mortgage News Daily, are holding comfortably below 7%. Notably, the spread between mortgage rates and 10-year Treasuries has been unusually tight—suggesting mortgage pricing is closely following the broader bond market.
Home Prices: Headline Growth vs. Real-Time Trends
At first glance, home price appreciation appears to be gaining momentum. The January Case-Shiller Index posted a 4.1% year-over-year increase, marking the third consecutive month of accelerating annual gains. But a closer look tells a different story. The index itself peaked back in July 2024 and has been trending slightly downward ever since. That early 2024 price surge is still impacting year-over-year comparisons, but unless there’s a fresh rally, those figures will flatten out by midyear. In reality, home prices have largely stabilized over the last six months—a welcome trend for buyers concerned about affordability.
What This Means for Buyers, Sellers, and Agents
The current environment remains challenging but manageable. For buyers, stabilized home prices and slightly lower mortgage rates offer a bit more breathing room than we saw last year. For sellers, pricing realistically and understanding local demand is critical, especially as market activity remains sensitive to rate movements. For agents, staying educated on these economic crosswinds is more important than ever—clients are looking for clear, confident guidance in a market that refuses to move in just one direction.