Economics: What Could Go Wrong in 2025

Things were supposed to be simple in 2025, with a “more of the same” economy chugging along at a decent clip without too many danger flags flapping in the wind. Two weeks into the year and things have become a lot more complicated.

There’s no shortage of wild cards to watch in 2025—and that’s not even taking potential black swan events into account.

Here are six economic indicators to watch as the year starts to unfold.

The housing market

The future looked bright for the housing market as recently as September. The Fed was cutting rates, inventory was loosening, and consumers were engaging with the market. But the expected drop in mortgage rates didn’t happen—mortgage rates are higher now than they were before the cuts. So much for consumer enthusiasm. Zonda’s thesis for the housing market in 2025 is more supply, a modest improvement in sales, and a complicated mortgage market.

Mortgage interest rates

Let’s stick with mortgage rates. When the Fed changes the federal funds rate, mortgage rates tend to follow. But, hey, they don’t always. That’s because mortgage rates are ultimately determined by investors. While the Fed won’t “guess, speculate, or assume” on what the Trump administration might mean for the market, investors will go ahead and do all three. Their investment decisions are pushing mortgage interest rates higher.

Interest rates

The Fed’s path was clear a few months ago. It was going to bring interest rates down throughout 2025 to move its policy stance from restrictive to neutral. Now, with growth holding up, high asset values, and solid consumer spending, the Fed feels less pressure to lower rates and less convinced it’s even required.

Consumer spending

Consumers represent 70% of the economy and are a big reason the economy is holding up. We know that a lot of the spending has been fueled by depleting our savings accounts and taking on higher levels of debt. Will consumers finally crack in 2025? That will depend, in part, on what happens to the economy.

The incoming administration

Tariffs and deportations and tax changes and talk of a 51st state—oh my! The policies implemented by the incoming administration could have a profound impact on the economy, Fed policy, the housing market, global relations, and more. Pro-growth policies, potential changes to tax policy, and a domestic-first attitude could help drive economic growth but could also lead to higher debt levels and higher interest rates. Tariffs, mass deportations, and higher interest rates disproportionately impact the housing industry.

Stock volatility

While only a select subset of the American population owns stocks, movements in the stock market can impact consumer confidence and therefore consumer spending. While the broader market rallied and is still showing signs of life heading into 2025, the S&P Homebuilders Select Industry Index barely kept its head above water last year. What will this year hold for the stocks in a choppy market?