The FED and Global Warming

Amidst all the controversy of late there is one consensus :  The housing market has been in a severe recession for the past couple of years.  That’s often attributed to the Fed’s raising interest rates to combat inflation. With the assumption that inflation really is under control there is enormous pressure to ease those rates and to spur the U.S. economy as well as bring relief to the national real estate market.

Locally 2025 was expected to be a banner year for real estate. Instead, it has flagged dramatically.  It started well but the spring  economic disruptions brought a sharp reversal. June and July gave hope for turnaround momentum, but that ran out of steam in August and September.  At the end of the 3rd Quarter 2025 housing sales numbers and prices were the same as 3rd Quarter 2024. The median recorded sales price remains at roughly $1,100,000.

Affordability is the issue with persistently elevated prices and mortgage costs. Housing inventory has returned to 2019 levels and eased the supply in favor of buyers. But prices seem to have stabilized at the highs they hit in 2022 when the MRSP also was about $1,100,000. 

That takes us to mortgage rates and the Fed. But the Fed does NOT set mortgage rates. They set short-term rates, but only indirectly affect the long-term. They’re a factor in the equation for mortgages, but the direct link is the 10-year U.S. Treasury bond yield.  Who controls that?  Nobody!  It’s the result of millions of investors buying and selling long-term Treasury bonds based on individual and institutional analyses of the trends in the U. S, economy. There is no Fed Board of Governors and on one subject to political imperatives.

That said, the Fed rate is among the factors influencing 10-year Treasury yields. But they are also independently affected by expectations for inflation, economic growth, investor appetite for risky or safe investments, and global economic conditions. If investors deem tariffs to be inflationary, yields and therefore mortgage rates will go up to account for that. If they see signs of recession and high unemployment, yields and mortgages will drop. If international investors note a weakened U.S dollar they may flee to gold or other currencies causing yields to go up.

A yardstick of the relationship of 10-year T-bond yields to mortgages is that yields of 4 percent translate to mortgage rates near 6 percent. Currently yields are in the low 4 percent range.  Should they break through the  4 percent barrier resulting in mortgage rates below 6 percent, we could well see the bursting of the dam of pent-up demand for real estate and a flood of sales and increasing prices.

In the meantime, buyers should focus on property fundamentals and their family needs rather than timing interest rate movements while sellers must price competitively in a more discerning market environment.