Weekend Talking Points - 'Progress'

After nearly two months of falling bond yields (and mortgage rates), trends reversed course this week, despite solid progress getting CPI lower and a BLS jobs report that was weak beneath the surface. The Fed is expected to keep rates steady next week.

February BLS jobs report — weakness beneath. The US economy added 151,000 jobs in February 2025, a bit below Wall Street expectations. The unemployment rate ticked up from 4.0% in January 2025 to 4.1% in February 2025, and most of the job growth came from part-time, rather than full-time, workers.

TP: On the surface, this wasn’t the kind of jobs report that would have the Fed considering rate cuts for next week. But the deeper you go (revisions, part-time vs. full-time, birth-death model, gov’t vs. private) the more concerning things look. A few days earlier, ADP reported only 77,000 private jobs added in February.

January JOLTs report a mixed bag. Total job openings rose to 7.7 million in January 2025 (up from 7.5 million in December 2024), but the hiring rate remained near a 12-year low. [BLS]

TP: Usually, the JOLTs report is the first bit of jobs data we get. This time it was the last. Things will get back to normal next month.

February CPI makes solid progress. Both “headline” and “core” (ex-food & fuel) CPI rose by only 0.2% month-over-month in February 2025. As a result, annual “headline” inflation dropped from +3.0% YoY in January → +2.8% YoY in February. Similarly, annual “core” inflation eased from +3.3% YoY in January → +3.1% YoY in February.

TP: Shelter costs make up 44% of the “core” CPI (by far the largest component). In February 2025, shelter costs only grew 0.3% MoM, allowing the annual shelter figure to decline from +4.4% YoY to +4.2% YoY.

The wealth effect, reversed. When the value of your assets (stocks, homes, Bitcoin, wine, whatever) rises, you feel wealthier and spend more, even if you don’t really have the money in hand (because you haven’t sold the stocks, etc.). The wealth effect boosts consumption, and consumption is the largest driver of US GDP.

But when stocks fall (the NASDAQ index is down 13% since Christmas 2024), the wealth effect reverses. People are less spendthrift, and that can hit company earnings and GDP. Suddenly, ‘recession’ is back in the market vocabulary.

The trump card of home equity. Meredith Whitney, the “Oracle of Wall Street”, had a great article in the Financial Times this weekend. Since 2019, the value of home equity has risen by $15 trillion, due mostly to home price appreciation, but also principal repayment.

TP: That brings total home equity to $35 trillion — equivalent to 1.2x the US GDP in 2024. This is a mammoth store of value, and we’re already seeing a big increase in home equity loans and HELOCs to tap this property piggy bank.

Rocket buys Redfin. Mortgage giant Rocket Companies has bought real estate broker Redfin for ~$1.7 billion. I agree with Mike DelPrete’s assessment that Rocket/Redfin is attempting to do the same thing that Zillow is (a full-service find, buy, finance model) but coming at it from a different angle. Zillow’s starting point is a dominant property portal, while Rocket has a giant mortgage business. Redfin adds a Top 5 property portal and a high-quality (but relatively small) brokerage business to Rocket.

TP: Established in 2002, Redfin was one of the industry’s first ‘tech-enabled’ brokers. The company built a leading property portal and offered attractive commission discounts to consumers. But Redfin’s market share never exceeded 1%. (It peaked at 0.8% in 2022.) The most valuable part of its business has always been its portal.

Mortgage Market

After nearly two months of falling US treasury yields and mortgage rates, trends reversed course this week. The yield on the 10-year US treasury moved up from near 4.1% to near 4.3%, and average 30-year mortgage rates moved up from 6.7% to 6.8%.

This despite encouraging signs on inflation (lower than expected CPI and PPI) and the labor market (slowing job growth), both of which should have seen bond yields move lower (because of an increasing chance of more/nearer-term Fed rate cuts).

Here’s what the Fed Funds Rate futures market is currently pricing in for rate cuts. Note that the current Fed Funds Rate policy range is 4.25–4.50%.

• March 19 FOMC Meeting: 99% probability that the policy rate will remain at 4.25–4.50% (up from 93% last week). In other words, that the market overwhelmingly expects the Fed will keep rates steady next week.
• May 7 FOMC Meeting: 74% probability that the policy rate will remain at 4.25–4.50% (way up from 54% last week). 25% probability of a 25 bps cut (25 bps = 0.25% = a quarter percentage point) to 4.00–4.25%.
• June 18 FOMC Meeting: 24% probability that the policy rate will remain at 4.25–4.50% (up from 16% last week). 59% probability that the policy rate will be 25 bps below current (which implies one rate cut on either May 7 or June 18). 17% probability that rates will be 50 bps below current.

They Said It

“After shrinking for 17 years, growth in home equity lines of credit (or Helocs) turned positive in 2024 and is accelerating into 2025. Of the $35tn in homeowners’ equity outstanding, I estimate that more than $20tn could be tapped while still keeping homes conservatively levered. This includes more than $14tn of equity in homes without mortgages. Of course, I expect nowhere near these levels to be tapped. But even if it is a fraction of that over the next few years, it would be massively stimulative to the US economy." — Meredith Whitney, in a 3/9/2025 editorial in the Financial Times

“Rocket and Redfin’s approaches to lending and brokerage service have always been two halves of one vision to make the whole home-buying process magical. We want a customer to be able to check her phone to find out what she can afford, see which homes are just right for her, schedule a tour with a local, expert Redfin agent, and get pre-qualified for a loan, all in a matter of minutes. Varun and I see how much better real estate could be when AI guides customers not just through that first step in their search, but all the way home, through the sale, the loan and then a lifetime of accumulating equity and wealth.” — Glenn Kelman, Redfin’s CEO

“As we enter the spring homebuying season, the [Mortgage Bankers Association’s] purchase index was more than 4 percent higher than a year ago, and activity was up across all loan categories. Government purchase applications experienced an 11 percent increase — helped by the FHA rate dropping to 6.34 percent. Additionally, average loan sizes were higher, with the purchase loan amount hitting $460,800, the highest in the survey dating back to 1990. The refinance share of mortgage activity increased to 45.6 percent of total applications from 43.8 percent the previous week.” — Joel Kan, MBA’s Vice President and Deputy Chief Economist

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