← BiggerPockets Real Estate Podcast
Loading summary
Transcript7 lines
- [00:00]
Dave Meyer
This is the mortgage rate range to expect for the rest of 2025. President Trump is feuding with Fed Chair Jerome Powell. Tariffs could cause inflation. Recession. Risks are rising. Will all this cause mortgage rates to finally fall? Or could they actually go back up? There's a ton of uncertainty right now, but as investors, we all just want to know, which way are mortgage rates going to move? So today I'm going to dive into why mortgage rates are changing so much, what might happen next, and what smart moves you can make to protect and grow your portfolio. If you're investing in 2025, or maybe you're just trying to decide if now is a good time to buy, you're going to want to listen to this one. Hey, what's up, everyone? It's Dave, head of real estate investing at BiggerPockets. And maybe you're like me and you can remember a time way back when mortgage rates were steady and were only a minor part of being a real estate investor. It feels like a distant dream, right? Because the reality is that nowadays we need to be thinking about mortgage rates more regularly because there is a lot of volatility in the housing market. And as you probably know, mortgage rates really matter. To me, actually, the direction of basically the entire housing market, including housing prices, the state of sales volume, and pretty much everything else are highly dependent on mortgage rates and the direction that they move in in the coming months. So it is pretty important that all of us as investors wrap our heads around this, and I think I can help this all make at least some sense. In addition to owning and operating a real estate portfolio for the last 15 years, I'm also a housing market and economic analyst. And I think those skills have given me some advantages in my investing, and I want to pass them along to you, particularly in these types of investing climates. Because right now we're seeing a pretty big divide between the data and some of the popular narratives about what's happening in the real estate market. And I think you should know the real situation. So here it is. Despite what you've probably heard in the mainstream media or on social media or from your random cousin, the path forward for mortgage rates is not clear. And yes, I know people have been saying for months or even years, I think that it's just a matter of time before mortgage rates fall. And in a way, that is true. But right now, there's not a clear timeline on when that will happen. We might actually even see rates go back up for periods in the near future. We're in this super volatile Period. Just consider what has happened over the last 12 months. A year ago, rates were about seven and a half. This was last May. Then they dropped all the way down to 6% last August, which was a huge improvement. But then they just went right back up to 7.25% in January. Then in April, they went back down to 6.6%. Now as of this recording, they're back up to 7%. It has absolutely been a roller coaster ride. And yeah, it is true that mortgage rates are always moving somewhat, but this level of change, which you might hear me called volatility, is, is not normal. And not even just from a data perspective. Let's just call it like it is. It is super annoying and frustrating that it is always changing. Because having high interest rates is one thing, but having higher interest rates and unpredictable interest rates, it's just not fun for real estate investors. The first thing that you need to know and to remember throughout this episode is that the Fed doesn't set mortgage rates. Let's just say it again, the Fed does not set mortgage rates. This is something that so many people incorrectly assume. The Fed can indirectly influence mortgage rates through the federal funds rate, but they do not control mortgage rates. That is pretty much up to what happens in the bond markets. Bonds and mortgage rates are very closely tied. When yields on bonds go up, so do mortgages. When yields and bonds decline, so do mortgage rates. Just remember that. So the question then becomes, why haven't mortgage rates fallen like people were expecting? Well, it should be simple. Now, bond yields have gone up and there are a lot of complicated reasons for this. But I'll give you the sort of TLDR version. Bond investors do not like inflation and they do not like instability. When they are afraid of inflation or feel uncertain about the U.S. government's commitments to repay its debts, bond yields rise. And when the opposite is true, like when they are worried about recessions, bond yields tend to fall. And it seems that at least since September, October of 2024, they've been basically oscillating back and forth between inflation fears and recession fears. And they're essentially just taking all of us real estate investors along with them for this wild and frustrating roller coaster ride. Every time some piece of news comes out or a new policy is implemented, bond investors react. And I think we should be real. They seem very sensitive right now. They all just react and we're basically at their mercy. So that brings us up to speed about how we got to where we are. But everyone wants to know where we're going. From here, why Trump and the Fed are fighting right now and what you should do with your own portfolio. We'll get to all that right after this quick break. This week's bigger news is brought to you by the Fundrise Flagship Fund. It's invest in private market real estate with the Fundrise Flagship fund. Check out fundrise.com pockets to learn more. Want to invest in real estate but don't have the time or know the best local markets? Rent to Retirement has got you covered. Here's the deal. They've helped thousands of investors just like you find turnkey homes across the best US Markets. And best of all, they do all the heavy lifting for you. With over 255 star ratings on bigger pockets, Rent to Retirement experts help you build strategies to retire early through real estate and and right now, Rent to Retirement offers some amazing incentives on turnkey new construction properties. Just for example, you can get up to 30% off new build prices or you can get 0% down loan options or interest rates available as low as 3.99%. So don't miss out. These deals will not last. Text REI to 33777 or visit biggerpockets.com retirement to start investing in top cash flow markets today.
- [06:27]
Aaron
Landlords Here's a quick A standardized checklist for property inspections can save you time, money and headaches. Preventative maintenance means fewer expensive surprises later. Want to save even more? RentReady helps you stay on top of rent collection, lease management and maintenance requests all in one easy to use platform. And right now you can get six months of rent ready for just $1. With promo code BP2025, visit rentready.com that's R-E-N-T-R-E-I.com and use code BP2025 to get started. Aaron, the ad guy here. Yeah, that's right. I do all the ads for BiggerPockets and you might be saying to me, aaron, the ads are too long, or Aaron, there's far too many ads. You know what? Come get me then. You think you're so tough. If you can tag me while I'm unawares, I will remove every single ad from the BiggerPockets network. You have my word. But you're never gonna catch me. You know why? Because I have the Simplisafe home security system and I've got multiple locations I can go to with it installed there too. Just try and get past my high tech sensors that detect break ins, fires and floods, or indoor and outdoor cameras to keep watch day and there's no way you're getting past my 247 professional monitoring that I only pay like a dollar a day for. And they even said if I don't like my system that I could get a full refund with SimpliSafe 60 day money back guarantee. But that'd be crazy because I love it so much and they love us so much that they're doing 20% off any new SimpliSafe system with fast protect monitoring@simplisafe.com pockets. That's SimpliSafe.com pockets. There's no safe like SimpliSafe. Woo. Another safe ad in the books.
- [07:57]
Dave Meyer
Tired of the headaches that come with hunting down sufficient rental property insurance? Well, say goodbye to the endless calls and all the stress with National Real Estate Insurance Group, or as they call it, nreg. With nreg, you can customize your coverage easily, manage it online, and keep every property you own, regardless of occupancy status, protected on one monthly schedule and bill. There's no fuss, just flexible, reliable coverage that adapts to your portfolio. Visit biggerpockets.com insurance to learn how effective insurance can be with National Real Estate insurance group. That's biggerpockets.com insurance. Go visit it to request a proposal today. Welcome Back to the BiggerPockets podcast. We're here talking about mortgage rate forecasts, and before we went to the break, we were talking about how we arrived at the point we are today and how mortgage rates are largely influenced by the whims and the beliefs of bond investors. So then to figure out what comes next, we basically need to channel our inner bond investors and try to think like them as best that we can. And to me, there are three major narratives that could possibly drive mortgage rates in the coming months. Those are an economic slowdown, which is AKA recession, inflation, and this new thing called the Sell America trade, which I'll explain in just a minute. But let's go through each of these one by one and we will start with a recession. Now, I know people have been claiming a recession is coming for years now, and they have been wrong. But that talk has definitely been increasing of late, with a few key recession indicators starting to flash warning signs now. The consensus among economists and Wall street strategists has shifted sharply in just a couple of months. The IMF cut its UF growth forecast to 1.8%, citing trade tensions and weakening trade consumer confidence. JP Morgan pegs the probability of a recession at 60% now, up from 40% earlier this year And Goldman Sachs is about even odds at 45%. So what's driving this? It's definitely a confluence of things, but I think the most recent fear is because of the aggressive tariffs President Trump has implemented. He himself has said that there could be some short term pain associated with the changes he's making. We are seeing some generalized slowing of global growth. And there's recent data that points to consumer sentiment and business sentiment taking what I would honestly call a nosedive. It is really going down. Even still, there are a few bright spots like this labor market is doing surprisingly well. There is some resilience in consumer spending. So we're seeing sort of both sides of the recession picture. And the overall outlook is pretty cloudy. Now the Fed people still think that they're going to cut rates slowly and that could help the risks of a recession. But with inflation risks still lurking, they seem to be hesitant to cut too soon. That has sort of led to this public spat between Trump and the Fed, which we'll talk about in just a little bit. But first let's talk about the second indicator on bond investors minds, which is inflation. After the sort of wild ride that we were on in 2022 and the sticky inflation that we just got through in 2023 and 2020 24, the latest data is pretty encouraging. It shows us that annual inflation has cooled to about 2.4% as of March and that is down from 2.8% the previous month. This it's huge progress from where we were a few years ago. And there are some particular bright spots with energy prices dropping and the very sticky rent and shelter inflation we've talked about a lot on the show starting to cool off. Let's just be clear here that in terms of the data we have, inflation has been heading in the right direction. But data is obviously inherently backward looking and there is fear inflation could swing back in the direction no one wants because the policy environment has shifted. Historically, tariffs have led to inflation and I don't really see a reason why they wouldn't do the same this time around. If it costs companies more to import goods into the US or produce those goods domestically, they will very likely pass some of those costs on to consumers and that leads to higher prices, which is inflation. I think most economists are right to think that we will see that upward pressure on prices as the year progresses. Just as an example, Morgan Stanley bumped its 2025 inflation forecast up to 2.5%. Goldman Sachs warns that core PCE inflation could hit 3% if tariffs stick around. So just As a quick summary of inflation. Inflation's doing okay right now, but there's worries it could go back up. But no one I've seen, no credible source I've seen has been predicting some massive hike in inflation to anywhere close to what we saw in 2022 or even 2023. But they're saying we could basically take a step or two backwards from the positive trend we've been on over the last couple of years. So those are probably the two big things on bond investors minds right now and why mortgage rates are fluctuating is that we have inflation fears, we have recession fees. But we need to talk about the fact that these two fears are existing at the same time because it's kind of unique. Normally in an economy you get either one or the other. You either get a recession or inflation. But the idea that these two things could coexist is a situation called stagflation. And that could create more problems for the economy. But it's also creating this uncertainty about mortgage rates first and foremost. Right. You could probably see, based on what I've said so far, why mortgage rates are swinging. I said earlier in the show, that bond yields, which directly influence mortgage rates, are impacted primarily by the fears of recession and the fears of inflation, and which one is getting worse at a given point in time. So the fact that both of these fears exist makes sort of sense why there's this volatility. But there is sort of more to it than that. This potential for stagflation, or at least the uncertainty around the direction of GDP growth and inflation, have created a difficult situation for the Fed. It means the Fed's hands are somewhat tied. They can't really lower rates for fear of inflation and they can't raise rates for fear of recessions. It's a tough spot for the Fed or any central bank to be in. And Fed Chair Jerome Powell has said as much. Now, President Trump disagrees. He thinks rates should come down, and he has said so repeatedly and publicly. But Powell, at least for now, has been holding his ground, despite Trump's public ponderings of whether or not Powell should be fired. So this is why, although you may be hearing that the Fed is going to cut rates, it may not happen. Most economists still think the Fed will cut twice in 2025, but it's not certain, especially if inflation reverses course. But this spat between Powell and Trump, plus the general uncertainty in the economy right now, leads us to our third factor that's influencing mortgage rates, which is the quote, unquote, sell America Trade. If you haven't heard this term before, Sell America trade is a term. It was just recently coined by a Wall street analyst, but it's sort of been picked up across the financial media. In plain English, the sell America trade is when investors, global investors, dump US assets. This is stocks, bonds, even the dollar in favor of foreign markets or some traditional safe havens like gold. And this dynamic does not usually happen, but it happened over the last couple of weeks where we saw all three of these things happen. We saw stocks go down, we saw bond yields climb, and we saw the dollar decline all at once. That is very unusual. Typically when there's a sell off in stocks, you see investors move their money to the safety of U.S. treasuries. But this April, we've seen numerous occasions where stocks have sold off. So have Treasuries. The dollar is weakened. It's weird and it is not good. Because while we don't know precisely who is selling and why, the long of short of it is that investors are moving their money out of US assets and into foreign assets. And now this might not seem like a big problem, but it is, particularly for mortgage rates in the US Like I've said repeatedly, our mortgage rates are dependent on U.S. treasuries and U.S. treasuries is dependent on demand. If a lot of investors want to lend money to the US government in the form of US Treasuries, interest rates or the yields on those Treasuries go down and they take mortgage rates down with them. But if there is less demand for US Treasuries like we saw in these occasions where people were just selling US assets, bond yields will rise and mortgage rates will go up as well. And this is one of the main reasons, alongside inflation concerns, why mortgage rates have risen in recent weeks. Weeks, despite a sell off which would normally bring mortgage rates down, could be a one time phenomenon, we don't know. It is definitely not a trend. But if it does continue, it spells trouble for mortgage rates and honestly I think for the entire US economy. But as of right now, I don't want to raise too many alarms because it just happened once or twice in April. But it is something that is so unusual that I do think that it is worth mentioning. So just to summarize where the direction of mortgage rates are, it will depend on inflation, it will depend on recession. And our third variable, which is more of like a black swan variable, this Sell America trade. Given that if you want to know where mortgage rates are going, you can ask yourself where you think these trends will go? Is a recession coming? Will inflation spike? Will investors flee U.S. assets? Of course, no one knows for certain, but if you have a strong thesis in any of these directions, you can use it to project which way mortgage rates will move and inform your own investing decision decisions. Now, what do I personally think and what investing moves am I going to make? I'll share when we get back from this short break. Do you want to invest in cash flowing rentals but don't have the time to manage the properties? Is your local market too competitive or expensive to invest in? Rent to Retirement offers new construction turnkey investment properties that you can buy with as little as 5% down and rates as low as 3.99%. Their team handles everything from financing, management, insurance and more, so you can live where you want and invest in the markets that offer the best returns. Rent to Retirement has the best reputation in the industry with more five star reviews than any other company on the BiggerPockets website. To learn more, visit biggerpockets.com retirement or just text REI 233777 to start investing in the best markets today.
- [18:35]
Aaron
Inspecting your rentals again? Here's a pro A simple checklist makes sure nothing gets overlooked. It saves you time and costly repairs down the road. And when it comes to managing your rentals, RentReady makes everything easier. Rent gets paid on time, leases get signed online, and maintenance requests don't get lost in your inbox. And if you're a BiggerPockets Pro member, I've got great news for you. RentReady is already included in your membership for free. Don't leave it sitting on the table. Log in to your BiggerPockets Pro account and start using RentReady today.
- [19:04]
Dave Meyer
Worried about your investment properties? Weathering a storm? Experience peace of mind with coverage from National Real Estate Insurance Group or NRIC as they call it. They've built the largest investment insurance program in the country. They focus solely on residential, tenant occupied, vacant and renovation properties, all customizable to your specific needs with just a couple of clicks. So while the rain pours outside, rest assured your properties are covered with comprehensive insurance from NREC. Visit biggerpockets.com insurance to learn how effective insurance can actually be with National Real Estate insurance group. That's biggerpockets.com insurance. Go visit today to request a proposal.
- [19:37]
Aaron
Ever feel like managing your business finances is a full time job on top of your actual full time job? Well, you can find some of that lost time with Found. Found is a business banking platform that helps you effortlessly track expenses, manage invoices and prepare for taxes. You can even set aside money for different business goals and control spending with different virtual cards. I have saved so much money because Found helps me identify tax write offs and I've saved so much time that I can now devote to chasing new opportunities and doing the work I enjoy. The best part about Found is that everything is in one place. No more juggling multiple apps or losing track of receipts. Found helps you stay organized and rest easy knowing everything is handled. Oh and by the way, other small businesses are loving Found too. This Found user said Found is going to save me so much headache. It makes everything so much easier. Expenses, income, profits, taxes, invoices even. And found has 30,000 5 star reviews just like this. Open a found account at found.com biggerpockets found is a financial technology company, not a bank. Banking services are provided by Piermont bank member fdic. Join thousands of small business owners who have streamlined their finances with Found. You ever feel like your house has become an all inclusive resort for bugs? Like ants are having pool parties in your sink and spiders are selling timeshares to your vents? Yeah, that used to be us until Pesti showed up. With Pesti's do it yourself pest control, you can protect your home easily and at a quarter of the cost. The best part is it's super simple. Pesty sends you a kit right to your house. You get a sprayer, mixing bag, pesticide gloves and instructions all customized for your exact location, season and the bugs common in your area. I knocked it out in under 10 minutes. Since then, total radio silence from the bug population. It's like they got the message and packed up for good. No ants, no spiders, no uninvited creepy guests. My family's thrilled and so is the guy who used to chase bugs with a flip flop. That was me. Pesty gets rid of over 100 types of bugs and it's kid and pet friendly. Plus, if the bugs don't go away, they'll give you your money back. Now is the time to protect your home from bugs with Pesti. Go to pesti.com bp for an extra 10% off your order. That's P E S T-I-E.com bp for an extra ten percent off.
- [21:41]
Dave Meyer
Welcome back to the BiggerPockets podcast. We're here talking about what happens with mortgage rates in this new economic reality that we're living in. And as I said before the break, I'll give you my thoughts on what happens from here, but you may not like it because my educated, highly researched best guess is that rates are going to stay relatively high for the foreseeable future. As we've talked about throughout the show, predicting mortgage rates is trying to predict the bond market. And I think there's just too much uncertainty for bond yields to fall. Yeah, there are fears of recession that could bring down bond yields, but the risk of inflation is counteracting that. And the general caution investors are starting to show, really, for the first time in many, many years about American assets is also counteracting that for mortgage rates to fall, we need a recession without inflation and some more stability in our policies around trade and Fed relations. That's how they come down. I mean, I don't know if those things are going to happen and when, but that is the formula we need for mortgage rates to come down. If any of those three variables remain uncertain about recession, about inflation, about our policies, I think that rates stay relatively high. And frankly, I don't know, maybe we'll get clarity about some of these things, but the idea that we're going to get clarity about all three of these variables in the next few months, I just don't see that happening. And that's why I think rates are going to stay relatively high. And of course they're going to fluctuate week to week, month to month, and maybe even up to a half a point or more. But I don't see them going below 6.5% for the foreseeable future. And, you know, maybe they'll get above 7.1, but I think that's kind of the range that I'm expecting mortgage rates to be for at least next 3ish months. And I should mention that I believe this. Even if Trump gets his way and the Fed cuts rates, and I know you may disagree with this and this might be controversial, but I think this may be true even if Trump fires Powell. Because think about it, if the Fed cuts rates, yes, that will lower some borrowing costs, but it will also spook investor about inflation. Right. People are already spooked about inflation, and lower rates could make that worse. So any potential cut might be offset by those inflation fears. Remember, this just happened. Right. This isn't some, like, crazy hypothesis that I have. Remember when the Fed cut rates in September and mortgage rates went up? Yeah. We have seen this movie before. But what if Trump fires Powell and rates really come down like, say, 200 basis points? Same thing, at least to me. Right. Because that actually might even be worse. I think that would be sort of this double whammy because yes, the federal funds rate will come down, but I think the fact that Trump fires Powell and the ending of Fed Independence would introduce this whole new realm of risk for bond investors. And bond yields could actually go up and inflation fears would go up too. This would just be pretty unprecedented. So I can't say with a lot of certainty what would happen, but I think it might not work out as cleanly for mortgage rates as you might think. We've already seen how the bond market reacted when Trump just threatened to fire Powell. Bond investors didn't like that. They felt like there was risk and bond yields went up. So regardless of what you think of Jerome Powell, him being fired may not get you the mortgage rate results that you're looking for. So that's my take. And honestly, it's not really that different than I predicted at the beginning of the year. I've been saying rates higher than most people expect somewhere in the mid to high sixes for the coming months, between 6.5 and 7%. But I do think if things calm down over the next few months, if trade deals are struck, if Trump resists firing Powell, the general trend for mortgage rates is down. It's just going to take longer and will probably be less of a decline than most people think. So, in terms of real estate strategy, what am I doing about all this? I'm buying real estate. This is the upside era, after all. Long term investing is the name of the game. And despite a softening housing market and persistently high interest rates, there are still deals to be had. Concessions are up, price drops are up, negotiations are yours for the taking. Don't assume you can't find a property that works because interest rates are at 6.8% or whatever. Go find a property you think has upside, calculate what price you could pay with current rates and make that offer. If it's not accepted, find another property and try again. Don't get me wrong, there is risk in these types of buyer's market that we're in, but there are also so many opportunities. This is where opportunities come. So despite everything else going on right now, I'm sticking with my long term strategy of finding great assets with lots of upside that I want to hold for 10 plus years. That may not be your strategy, but I'd encourage you all to at least follow me with the big pillars of my strategy right now, which are be conservative in your underwriting, assume minimal growth for the next few years, ensure at least break even cash flow for properties that you want to hold, and find two to three upsides for each deal. If you could do that in today's environment, there's no reason not to be active in this market that is sure to produce opportunities. All right, that's what we got. The mortgage rate outlook for May 2025. Thank you all so much for listening. If you have questions, make sure to drop me a comment. Or you can always hit me up on Instagram, where I'm at the data deli, or on BiggerPockets. Thanks for listening to the BiggerPockets podcast. We'll see you next time. Thank you all for listening to the Biggerpockets Real Estate Podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify or any other podcast platform. Our new episodes come out Monday, Wednesday and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K. Copywriting is by Calico, Content and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpock. the content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk, so use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose, and remember, past performance is not indicative of future results. Biggerpockets LLC disclaims all liability for direct, indirect, consequential or other damages arising from a reliance on information presented in this podcast.