The U.S. housing market remains under strain as the Federal Reserve delivered its third 25-basis-point rate cut of the year on Dec. 10. With inflation pressures and a weakening jobs market dividing officials, the Fed signaled that short-term rates have now reached neutral territory—and further moves may be on hold.
Following the widely anticipated decision, the Fed indicated that the impact on mortgage rates will likely be limited. Even with 30-year rates hovering near their lowest levels of 2025, they remain above 6%, offering little immediate relief to borrowers.
At its final meeting of the year, the Fed split 9-3 on lowering short-term rates to the 3.5–3.75% range, marking the first triple dissent in six years. Updated economic projections showed hesitation about cutting further in 2026, with policymakers nearly evenly divided between holding rates above 3.5% or lowering them slightly.
Fed Chair Jerome Powell emphasized during his press conference that the U.S. housing market still faces deep structural challenges. Low inventory and the lingering effect of ultra-low pandemic-era mortgage rates continue to keep many homeowners from selling. A modest rate cut, he said, will not alter the underlying shortage.
Powell explained that the Fed has now shifted toward a more neutral stance as inflation, at 3%, remains above target but appears to be cooling. Tariffs introduced earlier this year seem to have produced temporary price increases, and core inflation readings show signs of easing.
The softening jobs market, however, is a larger concern. Powell said the Fed will now observe whether three consecutive rate cuts can stabilize labor conditions. “We’re well-positioned to wait and see how the economy evolves,” he remarked.
The average 30-year mortgage rate recently dipped to 6.19%, according to Freddie Mac. While short-term rate cuts don’t directly set mortgage rates, the Fed’s cautious outlook could hold rates steady or push them higher in the near term, said Bright MLS economist Lisa Sturtevant, who also warned that inflation concerns may keep rates elevated.
However, upcoming labor and inflation reports delayed by the government shutdown could influence rate trends, noted Melissa Cohn of William Raveis Mortgage, ahead of the Fed’s January meeting.
Affordability may still improve even if rates remain in the low-6% range. Rising incomes and slow home-price growth should help buyers, said Realtor.com economist Danielle Hale, who expects the typical share of income spent on a median-priced home to fall to 29.3%—below the 30% threshold for the first time since 2022.
The direction of the labor market will also shape the U.S. housing market in the coming year. While affordability is slowly rebounding, weaker employment demand continues to weigh on home sales, said Keller Williams economist Ruben Gonzalez. He expects 2026 to be a transition year with gradually rising sales amid higher inventory nationwide.
