December 30, 2025
The Federal Reserve lowered their benchmark interest rates three times to close out 2025. While this was good news for the real estate markets, the path to lower rates has not been as clear as many would have hoped in light of the Fed activity. The disconnect has occurred despite major pressure on the Fed to lower rates significantly from the Administration and a clear slowdown in the labor markets.
Fed Chairman Powell had a lot to say after their last meeting in December. He acknowledged that the economy, especially the jobs picture, has gotten weaker. But he also pointed to the fact that inflation, while down significantly from its post-pandemic peaks, has not improved much in 2025. He cited the influence of tariffs upon inflation and also expressed the hope that tariff induced inflation would be a temporary factor. Stubborn inflation and a slowing economy puts the Fed in the unenviable position of fighting two conflicting enemies attacking from two completely opposite vantagepoints. Lower rates can exacerbate the inflation picture, but higher rates can stifle the economy even further.
Here is the good news regarding the real estate sector. Mortgage rates have come down during the past few months and this factor has increased real estate activity. And there is potential for further decreases in the coming months, regardless of the fact that the Fed may stay neutral early in 2026. Most prognosticators are predicting that rates will ease in 2026, but the easing is supposed to be gradual and limited in scope. For those looking to purchase a home this year, each drop in rates is a positive sign. Even more important, every decrease in mortgage rates brings us closer to loosening up the lock-in effect. This phenomenon keeps sellers from listing their homes because they have a low rate on their present mortgage. Let’s hope for more progress in 2026!
Source: Origination pro
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