Real Impact: What The First Quarter 2025 GDP Release Means for Rental Housing

What Happened:

Real U.S. GDP contracted at an annualized rate of 0.3% during the first quarter of 2025, based on the advance estimate from the U.S. Bureau of Economic Analysis.

The first-quarter decline was primarily due to a sharp increase in imports, which is a negative factor in the GDP calculation. GDP’s other components—consumer spending, investment, and exports—each also increased, partly offsetting the downside effect of imports.

Beneath the surface, the U.S. economy still exhibits strong fundamentals. The rise in imports during the first quarter was significantly driven by U.S. firms and consumers, who front-loaded their purchases of goods in anticipation of the Trump Administration’s tariffs.

It reflects robust consumer spending despite softening consumer sentiment. Nonetheless, the first-quarter numbers indicate that consumers and producers significantly adjusted their activities in anticipation of heightened trade tensions.

Impact on Interest Rates:

Forecasts for May’s FOMC policy meeting consolidated further around the expectation of no rate cuts, from a 90.8% chance as of one day before the GDP release to a 92.2% probability shortly after the GDP data was released.

The average futures market outlook for the year-end 2025 federal funds rate remained at a total of four rate cuts by the end of December. However, the negative GDP print has increased the probability of additional Fed rate cuts.

Following the GDP release, there was a 74.4% chance of at least four rate cuts by the end of 2025, compared to a 68.1% probability one day prior. The GDP decline has caused a larger share of futures markets to foresee five or even six rate cuts in 2025 as downside risks to the economy increase.

What It Means for Rental Housing:

On the surface, falling economic output and a worsening outlook for growth in 2025 are weak demand signals for rental housing. On the other hand, despite increasing uncertainty, consumers have yet to cut back on discretionary spending, which we would expect to precede any softening in housing demand.

A higher chance for a more accommodative interest rate outlook is a good sign for potential homebuyers and real estate investors alike. Still, with markets expecting the Fed to hold steady in the short term, it could be some time before a shift in the lending environment occurs. In the meantime, the slowdown in multifamily construction is likely to persist. Even as lending standards have relaxed slightly, elevated financing costs will continue to curb the appetite for new development.