US Economy Shrinks: Why Mortgage Rates Aren’t Dropping (Yet)

On The Market

BiggerPockets

News, Investing, Business, Education

4.8 • 820 Ratings

🗓️ 5 May 2025

⏱️ 30 minutes

🔗️ Recording | iTunes | RSS

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Summary

The US economy is shrinking, with GDP declining this quarter. We’re getting closer to recession territory, so why aren’t mortgage rates dropping? We’ll explain how one crucial part of the economy is staying strong—keeping the Fed from cutting and delaying the typical rate-drop that comes with a recession. What’s stopping us from going back to sub-6% mortgage rates? We’ll break it down in this episode. The economy is changing—fast. The US saw its GDP turn negative last quarter as many Americans braced for the impact of tariffs. But even with the overall economy lagging, labor data remains strong. Jobs are still being created, unemployment is relatively low, and Americans are going to work. This may be the single factor keeping the Fed in limbo, unable to cut rates any further. So, what happens if the labor market breaks? Home builders were already anxious over the past year, and now they’re getting even more hesitant to build. With tariffs pushing up prices for materials, building (and buying) a house could get much more expensive. And with builders already dropping prices, could this lead to a broader decline in home prices across the nation? In This Episode We Cover A worrying sign for the US economy and whether it could trigger lower mortgage rates The one thing standing in the way of the Fed finally cutting rates again Tariff effects on GDP and the first signs of what they could do to our economy New labor market numbers and why jobs are being added as the economy shrinks Are we in a recession? And does it even matter if we are? And So Much More! Links from the Show Join the Future of Real Estate Investing with Fundrise Join BiggerPockets for FREE Sign Up for the On the Market Newsletter Find Investor-Friendly Lenders Dave's BiggerPockets Profile BiggerPockets Real Estate 1116 - The Mortgage Rate “Range” to Expect for the Rest of 2025 Invest in Any Market Cycle with “Recession-Proof Real Estate Investing” Check out more resources from this show on ⁠⁠⁠BiggerPockets.com⁠⁠⁠ and https://www.biggerpockets.com/blog/on-the-market-318 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email ⁠⁠⁠[email protected]⁠⁠⁠. Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:00.0	The U.S. economy shrank in the first quarter, but at the same time, the labor market is holding strong, but home builders are raising red flags.
0:09.5	Today and on the market, we're breaking down the most recent economic news and what it means for the real estate investing industry.
0:20.4	Hey, everyone, it's Dave, head of real estate investing at Bigger Pockets.
0:24.2	This has been a week with a lot of interesting news and data, which, as always, means big
0:29.5	implications for real estate investors. And while I would love to cover every news story,
0:34.4	we don't have time for that, so we're going to focus on three big stories
0:37.8	you need to know about. The first story we'll cover is that the economy contracted in the first
0:42.5	quarter. The second thing is we've gotten a ton of labor data this week, which is probably
0:46.9	the number one thing that's going to impact mortgage rates going forward. So it's something we all
0:51.7	should be paying attention to. And lastly, we'll talk about some
0:54.6	interesting news from home builders that could spill into the broader housing market. All right,
0:59.2	first story, like I said, GDP, which is just a measure of the entire economic output for the
1:05.2	country, it stands for gross domestic product. This shrank in the first quarter of 2025, a very modest decline of just
1:14.0	0.3%. But this matters, right? It really, it is unusual for the economy to shrink in any
1:21.2	given quarter. No one really wants total economic output to go down. So anytime we see the GDP
1:27.4	decline, it is worth noting, talking about
1:30.7	and trying to dig into a little bit. The most common reason people talk about GDP is just
1:36.4	trying to determine whether or not we're in a recession. And now I know I've explained this
1:41.3	several times on the show, but I'm going to say it again, that in the U.S., we have this very weird system about recessions.
1:47.9	There's actually not any single objective measure of what's a recession and what's not.
1:53.8	Recessions are actually in this country decided on afterward, after they are over by the National Bureau of Economic Research. And so the rest of us
2:02.6	in real time are trying to figure out if we're in a recession or not. It's kind of hard. No one can do
	...

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