Housing market in a ‘psychological freeze’ as confidence falls
Inflation rose 3.3% in March and consumer confidence has hit a new low. Plus, judge upholds quashed Fed subpoenas; White House pitches $10.7B cuts to HUD; more.
Key points:
- Inflation jumped 3.3% in March, with rising energy prices serving as the main contributor. Economists say the Fed is now less likely to cut rates anytime soon.
- Meanwhile, consumer sentiment has fallen to record lows — and the housing market, which had a sunnier outlook at the start of the year, may already be feeling the impact.
- A judge has upheld a ruling quashing the subpoenas the DOJ served the Fed earlier this year, hampering the government’s investigation into Fed Chair Jerome Powell.
- In its fiscal year 2027 budget proposal, the Trump administration suggested cutting $10.7 billion from HUD programs.
New data released today shows that inflation surged in March while consumer sentiment has plummeted. Though not unexpected, these developments still spell trouble for the U.S. housing market.
In other news from the nation's capital, the Trump administration is proposing cutting billions in funding for U.S. Housing and Urban Development (HUD) programs, and a judge upheld a block on the U.S. Department of Justice's efforts to subpoena Federal Reserve Chair Jerome Powell.
A 'significant jump' in inflation
Overall inflation rose 3.3% in March compared to one year ago, according to the U.S. Bureau of Labor Statistics. That's up from 2.4% in February, but about what economic forecasters had predicted.
Core inflation — which excludes more volatile food and energy prices — rose by only 2.6% in March compared with 2.5% in February. Driven by increasing gas prices, energy inflation climbed 10.9%.
The surge in energy prices resulting from the war in the Middle East was the "primary driver" for the "significant jump," according to Bright MLS Chief Economist Lisa Sturtevant.
Though climbing inflation isn't a surprise, "it underscores the month-to-month whiplash consumers and financial markets have been experiencing" since the war began, Realtor.com Senior Economist Jake Krimmel said.
"The more prices rise," Krimmel added, "the more households tighten their belts, which has real consequences for spending, confidence, and big decisions like buying a home."
An 'erosion of confidence'
Consumer confidence has meanwhile fallen to a record low, according to the University of Michigan's monthly sentiment index. Preliminary data for April shows consumer sentiment at 47.6%, down 10.7% month-over-month.
Weakening consumer confidence "signals a more cautious outlook among households," First American Deputy Chief Economist Odeta Kushi wrote in a recent report, adding that this uncertainty "seems to already be influencing housing-related decisions, affecting whether buyers choose to act now or wait for greater clarity."
Sturtevant agreed that buyers and sellers alike "are acting with extreme caution, waiting for lower rates, more stable inflation and more certainty."
After five consecutive weeks of rate increases, mortgage rates did tick down slightly this week on the news of a ceasefire agreement in the war — but Sturtevant cautioned that the "erosion of confidence is creating a 'psychological freeze' in the housing market that extends beyond" rates.
What happens next with interest rates?
The Fed has already indicated that it's inclined to hold off on lowering short-term interest rates following three consecutive cuts in the second half of 2025.
The year began with forecasters anticipating potential cuts by mid-2026, a prediction that appeared bolstered by the stronger-than-expected March jobs report. But the economic volatility resulting from the war seems to have changed forecasters' tune — and a stronger labor market combined with rising inflation "effectively removes the possibility of a Federal Reserve rate cut in the near term," Sturtevant said.
The central bank, which next meets April 28-29, could instead go in the opposite direction at some point this year. While rate hikes "are not explicitly on the table," Krimmel noted, "they represent a credible threat."
Judge stands by quashed Fed subpoenas
Chief Judge James Boasberg of the U.S. District Court for the District of Columbia has let stand his earlier decision to quash subpoenas the DOJ served the Fed in connection with Powell's June 2025 testimony before a Senate committee.
"The standard for reconsidering is a demanding one," the April 3 ruling said, and "the Government's arguments do not come close to convincing the Court that a different outcome is warranted."
Because the government's "cursory brief neither offers new evidence nor points to any material error, the Court will deny the Motion," Boasberg said.
If the government appeals, it would further complicate the confirmation process for Powell's nominated successor, former Fed Gov. Kevin Warsh. Members of the Senate Banking Committee, which would need to move Warsh's nomination forward before a full Senate vote could take place, have vowed to block any progress until the criminal case against Powell is dropped.
Trump seeks $10.7B cut to HUD
In its fiscal year 2027 budget proposal, the Trump administration is seeking to cut $73 billion in non-defense discretionary spending — $10.7 billion of which would come from HUD, representing a 13% decrease in the department's budget.
The proposal includes eliminating some HUD programs — including the Fair Housing Initiatives Program and the Home Investments Partnerships Program — and consolidating several others, including a handful of homelessness assistance programs.
However, the cuts "are unlikely to be enacted," according to the National Association of Home Builders, which noted that the president's recommendations are "not legally binding." Congress is ultimately charged with constructing the government's budget.