Stop Waiting for the Fed to Save Housing

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I keep hearing some version of the same conversation in housing. When the Fed finally gets rates down, buyers will come back. Mortgage rates will improve. Transactions will pick up. Maybe we can finally get this market moving again.

I understand why people think that way. The Federal Reserve is important, and what it does with monetary policy absolutely affects housing. But we have leaned on the Fed explanation for so long that I think we have started giving people the impression that the Fed directly sets something it doesn’t: the rate on a 30-year mortgage.

This week should be a pretty good reminder of that.

The U.S. Treasury announced Wednesday that it would at least double the size of its liquidity-support buybacks for longer-dated Treasury securities. The current maximum of $2 billion per operation in the 10-to-20-year and 20-to-30-year sectors will increase to at least $4 billion beginning September 9.

Then on Thursday, Treasury Secretary Scott Bessent said the larger buybacks could go beyond $4 billion per issue.

This is not some obscure bond-market story that housing professionals can ignore. Long-term Treasury yields have been climbing, and the 30-year yield this week reached its highest level since 2007. What happens in that market works its way into borrowing costs throughout the economy.

Including mortgages.

That does not mean there is a simple formula where the 10-year Treasury moves by a certain amount and every mortgage rate automatically follows. Mortgage-backed securities have their own spreads, investors have their own risk requirements, lenders have costs, and individual borrowers obviously receive different pricing.

But a 30-year mortgage is a long-duration loan. Its pricing is much more closely connected to longer-term bond markets than to the overnight federal funds rate people hear about every time the Fed meets.

If you work in mortgage or real estate and you’re only watching the Fed’s overnight rate, you’re missing a large part of what is actually driving the market.

The strange thing is that we have had plenty of evidence of this already. The Fed can sit still and mortgage rates can move. The Fed can talk about future policy and long-term yields can go the other direction. Inflation expectations can change. Treasury issuance can change. Investors can decide they need a higher return to own long-dated debt. Events halfway around the world can change the equation before the Fed has held another meeting.

Now add something else that isn’t getting enough attention in housing: there is an enormous amount of demand for capital.

The federal government needs money. A lot of it.

At the same time, companies are spending enormous amounts building artificial-intelligence infrastructure, data centers, chips, power generation and the other pieces required for what they believe will be the next generation of technology. Federal Reserve officials noted in their July meeting that corporate bond and equity financing remained strong and was being driven in part by financing for AI-related investments.

Housing is trying to get funded in the middle of all of this.

I am not suggesting that an AI data center somewhere is directly taking a mortgage away from a family trying to buy a house. Capital markets don’t work that neatly. What I am saying is that investors have choices. When government debt offers a more attractive yield, other borrowers have to compete with it. When corporations want to borrow billions, they have to attract capital too. When investors become nervous about inflation or long-term government debt, they may demand more compensation for committing their money.

Those pressures eventually matter to someone sitting at a kitchen table trying to figure out whether they can afford a monthly house payment.

That is where this stops being a Wall Street story.

The minutes released Wednesday from the Fed’s July meeting make the picture even more complicated. The Fed left its target range unchanged at that meeting, but several participants favored a quarter-point increase. Many participants believed additional tightening would likely become necessary if inflation failed to come down.

At the same time, the Fed’s own staff described home-purchase mortgage activity as depressed.

There is the problem in one paragraph. Housing badly wants easier financing, while the people responsible for fighting inflation are still discussing whether financial conditions are restrictive enough.

I don’t know where mortgage rates will be six months from now, and anyone who tells you that they know should probably be treated with some skepticism. There are too many moving pieces right now.

What I do know is that the industry’s habit of telling consumers to wait for the Fed is becoming less useful.

A buyer hears that rate cuts may eventually come and assumes a dramatically cheaper mortgage is around the corner. A seller hears the same thing and decides there will be a fresh wave of buyers in a few months, so there is no reason to adjust the asking price today. Housing professionals repeat forecasts because everybody is desperate for a simple answer.

Then the bond market changes the answer.

We need to be better than that.

There are buyers who should wait. There are sellers who probably should not sell right now. There are borrowers whose numbers simply do not work in this market. I don’t believe in forcing a transaction just because everyone involved wants to get paid.

But there are also transactions that can work if the people involved actually understand the options in front of them.

Maybe the seller needs to look seriously at a concession instead of another price reduction. Maybe a builder incentive changes the payment enough to make a new home competitive with resale inventory. Maybe the buyer qualifies for down-payment assistance nobody bothered to discuss with them. Maybe there is an FHA- or VA-backed mortgage on a property that could potentially be assumed by a qualified buyer under the applicable program requirements. Maybe the house is simply overpriced and everyone needs to stop pretending otherwise.

None of those things changes the bond market. They deal with the transaction in front of us.

That is what I think the housing conversation is missing right now.

July’s construction numbers were weak. Census estimated total housing starts fell 12.4% from June to a seasonally adjusted annual rate of 1.239 million. Single-family starts were estimated at an annualized 808,000 units, compared with a revised 897,000 in June, although Census cautioned that the month-to-month change in single-family starts was not statistically significant.

Financing is difficult, builders are dealing with elevated costs, and affordability is still stretched across much of the country. There is no reason to sugarcoat that.

There is also no reason to act as though the entire industry has to sit in a waiting room until Washington gives us permission to do business again.

Watch the Fed. Absolutely. But understand what is happening in the Treasury market too. Understand mortgage-backed securities. Pay attention to inflation, inventory and what builders are doing. Know the financing programs available in your market. Know what buyers can actually afford and what sellers are actually willing to accept.

The Fed is one part of the housing market. It was never the whole thing.

The sooner our industry stops treating it that way, the better advice we can give the people depending on us.