Slumping Housing Market Could Save Us From Higher Interest Rates

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News Flash

Housing Slump Gives Fed Cover for Rate Cuts (Despite Tariff Drama)

The housing market's persistent weakness might just hand the Federal Reserve the perfect excuse to cut rates later this year. That's according to Bill Adams, Chief Economist at Comerica Bank, who thinks a struggling real estate sector could offset those pesky tariff-driven inflation concerns.

Here's the situation: Housing has been getting hammered by elevated mortgage rates and a shortage of affordable inventory. Both new construction and existing home sales are cooling off. Since housing is a massive GDP contributor, this slowdown could signal broader economic trouble ahead.

But wait – there's a complication. Chicago Fed President Austan Goolsbee noted that the "drip drip" of new tariff announcements makes their impact anything but a one-time event. Former St. Louis Fed President Jim Bullard, however, already thinks rates need to come down further.

Bill Adams' bet? The housing drag will outweigh tariff inflation. The Fed's balancing act just got more interesting.

Inventory Growth Hits the Brakes

June brought a reality check to the inventory surge we've been tracking all year. Active listings still jumped 29% year-over-year, but that's down from May's 32% growth – the first slowdown of 2025.

What's causing the pump to slow? Sellers are pulling a power move: instead of cutting prices, they're yanking listings off the market entirely. This trend is hitting the South and West particularly hard.

The new home market isn't helping either. June saw sales dip and prices soften despite builders throwing incentives around like confetti.

For buyers, this means more homes are available than recent years, but significant price drops remain elusive. The market's trying to find its new equilibrium.

Boomers Are Crushing the Competition

Here's a stat that'll make millennials cry into their avocado toast: Buyers over 70 are now outpacing those under 35 in home purchases.

The numbers are not pretty. With mortgage rates around 6.85% and median-priced homes requiring six-figure incomes in most metros, young adults are getting priced out entirely.

Meanwhile, boomers are sitting pretty with accumulated equity and cash reserves. They're less dependent on mortgage debt and can close deals faster, leaving finance-dependent younger buyers in the dust.

The "lock-in effect" isn't helping either. Existing homeowners with low-rate mortgages refuse to trade up, further restricting inventory.

The American Dream now might come with an age requirement.

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More You Should Know

• Moody's Warns: Housing Headwind: Moody's chief economist Mark Zandi has issued a "red flare" warning, indicating that persistently high mortgage rates near 7% are poised to significantly depress housing sales, starts, and prices, ultimately becoming a broader economic drag by late 2025. [Source]

• Rent Out of Reach for Many: The National Low-Income Housing Coalition's "Out of Reach" report reveals that minimum-wage workers in no U.S. county can afford a modest two-bedroom rental, requiring an hourly wage of $33.63, with over half of all renters currently facing cost burdens. [Source]

• Multifamily Starts Spike, Uncertainty Looms: Despite a notable 30.6% surge in multifamily housing starts in June, the lagging permits and completions indicate market volatility rather than a definitive, sustained rebound. [Source]

• Non-Residential Construction Starts Soar: Non-residential construction projects, including solar farms, power plants, and life-science facilities, spurred a 16% increase in construction starts in June, reaching a $1.33 trillion annual pace. [Source]

• Housing Sales Forecast Dips: Realtor.com's updated forecast projects 2025 existing-home sales to drop below 2024's historic lows, driven by an affordability crunch that keeps mortgage rates high and slows price growth despite increasing inventory. [Source]

• Mortgage Rates Inch Higher: Mortgage rates saw a slight increase on July 23, with the average 30-year fixed rate reaching 6.78% and 15-year loans at 6.05%, influenced by persistent inflation and tariff concerns despite hopes for a September Fed rate cut. [Source]

• KKR Earnings Defy High Rates: KKR Real Estate Finance Trust's strong Q2 earnings, driven by rising net-interest income offsetting credit-loss reserves, demonstrate the resilience of floating-rate loan portfolios in a high-interest-rate environment. [Source]

• Homebuyers Balk Amid Rates: PulteGroup and other homebuilders face reduced demand as rising mortgage rates and high home prices cause buyers to hesitate, illustrating a nationwide slowdown in the housing market. [Source]

• Private Real Estate Attracts Capital: Amidst stock market volatility and persistent inflation, family offices and pensions are increasingly allocating capital to core-plus private real estate funds, seeking predictable income streams. [Source]

• ROI Drives PropTech Investment: Commercial real estate owners are increasingly demanding PropTech solutions that offer clear returns on investment, emphasizing tools that either enhance revenue or reduce operational costs, with consolidated platforms and fintech leading the next wave. [Source]

• Rate Cut Hopes Endure: Despite a recent uptick in borrowing costs, hopes for future mortgage rate cuts persist, driven by signals from Federal Reserve Chairman Powell regarding potential easing. [Source]

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