February 2025 privately-owned housing starts rose by 15% compared to January starts. While that’s an encouraging sign, housing starts remain below levels from the same period one year ago.3 Haworth also notes that homebuilder sentiment, a possible indicator of when supply might expand, is negative. “Homebuilders, for now, seem to be responding to slower traffic among potential buyers due to early 2025 weather issues,” he says. “It appears, however, that new homebuyers are still out in the market looking for the right buying opportunity.”
One problem, according to Haworth, centers on market uncertainties as new Trump administration policies emerge. “There’s a lot we don’t know about how, in the next 3-6 months, various policies might impact the labor market, interest rates and building supplies,” says Haworth. For example, possible immigration crackdowns may reduce the construction labor force. Tariff policies could impact building supply costs. Interest rates could potentially adjust higher if inflation again becomes a major issue.
Fed policy influencing mortgage rates
Mortgage rates are typically higher than yields on the benchmark 10-year Treasury note. Modestly declining mortgage rates in 2025 generally tracked with 10-year Treasury bond yield changes. “Today’s mortgage rates reflect bond market yields, but also a relatively wide premium spread between 10-year U.S. Treasury notes and mortgage rates,”4 says Haworth. He believes Federal Reserve (Fed) actions play a role in keeping mortgage rates elevated. “The Fed is still determined to reduce its $2 billion+ balance sheet of mortgage-backed securities,” he says. “The Fed isn’t a buyer in the market, so private investors need to step up.” Haworth says this results in tighter demand for mortgage-backed securities, keeping spreads higher compared to Treasury yields.