Rocket Fuel Newsletter – The latest on home prices, mortgage applications, jobs, tariffs and more

Feeling like you got a case of the Mondays? If the answer is “yes,” you’re not alone. Turns out, the Monday after the Big Game is one that many football fans wish was a national holiday. Whether you’re feeling sluggish from a late night or already counting down to Friday, staying busy might be your best bet to get through the day!

Also this week: Read about home prices, the current state of the U.S. job market and everyone's favorite hot topic – tariffs.

Fuel up! 🚀  

Home prices inched up to end 2024

U.S. home prices rose 3.4% year over year in December – a slight uptick, but still reflecting a cooler market compared to the previous year. While inventory improved over most of 2024, December saw a decline, keeping supply tight. Looking ahead, prices are expected to rise 4.1% by the end of 2025, with the Northeast taking the lead in price growth.

Mortgage applications tick up as rates dip

Last week, mortgage applications rose 2.2%, driven by a 12% rise in refinance activity – the strongest since December 2024. Lower mortgage rates, with the 30-year fixed dropping to 6.97%, fueled the increase, though purchase applications declined across all loan types. The average purchase loan size continued to climb, reaching its highest level since October 2024.

Services surge ahead in U.S. job market

ADP’s latest report shows that the U.S. added 183,000 non-farm private sector jobs in January. While the manufacturing sector shed 6,000 jobs, the service sector drove growth by adding 190,000 jobs. Despite strong demand, construction added just 4,000 jobs, struggling with a long-standing skilled labor shortage. Experts point to shifting education priorities and ongoing supply chain issues as key challenges for the industry.

IRS expands free Direct File program

Good news for tax season: The IRS is making it easier (and free) to file. The Direct File program – first piloted last year – is now available in 25 states and open to nearly 30 million eligible taxpayers. The system even allows users to import W-2 forms and claim key tax credits, with 90% of early users giving it top marks. Just a heads up: If you have capital gains or rental income, you’ll need to find another filing method.

Let’s talk tariffs

Tariffs have been making headlines recently, as the United States has been negotiating with Canada, Mexico and China. So, what exactly is a tariff? In its most basic sense, a tariff is a tax on imported goods. It can come in two forms: a fixed fee depending on the item, or an ad valorem tariff, which is a percentage of the import’s value. These taxes are paid by the consumer, effectively raising the price of foreign goods.

There are several reasons a domestic government might want to impose tariffs. First and foremost, like all taxes, tariffs provide the imposing government with additional revenue. This revenue can then be used to finance specific goals, such as replenishing the trade deficit. Another possible motivation for tariffs is to give a competitive advantage to domestic companies. For example, the United States might impose a tariff on foreign vehicles, raising the price of imported cars and driving consumers to buy American. Finally, as we’ve seen recently, tariffs can be used as a negotiation tactic in international trade talks. The threat of a restricted demand on imported goods can be seen as an attempt to get the exporting country to take action that would benefit the importing country.

Of course, manipulating the free market may result in unintended consequences. Implementing tariffs could potentially drive up inflation – either consumers pay higher prices for foreign goods, or competition is removed and domestic companies are able to increase prices. Recent talks of tariffs on Canadian and Mexican imports prompted a statement from the National Association of Home Builders (NAHB). The NAHB stated that 70% of imports utilized by homebuilders come from Canada and Mexico, and tariffs could drive up prices in an already expensive housing market. Similarly, removing competition could reduce the quality of domestic goods.

The potential for a trade war is another downside of tariffs that has come up with recent trade talks. If one country imposes a tariff on another, they could retaliate with tariffs of their own. If the two countries cannot come to an agreement, there could be a downward spiral of tariffs that is mutually destructive.

Historically, tariffs have been utilized for centuries. In fact, the establishment of the United States as a country was expedited by the Tea Act of 1773 – a tariff on tea – that the colonies viewed as taxation without representation. This led to the Boston Tea Party in 1773. On the other hand, if used successfully, tariffs can produce revenue for a government and benefit consumers at the same time. However, the potential for tariffs to backfire always exists.

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