Wednesday, September 17, 2025
Ahead of today’s biggest market news item — the Fed rate cut, expected at 1pm ET today — we see an economic segment directly affected by interest rates, Housing. As we’ll see, the homebuilding side of the housing market continues to cool down — clearly a result of still-high interest rates, which translate to high mortgage rates.
August Housing Starts & Building Permits Lower
We had expected
Housing Starts to cool month over month, from a +5% pop in July to something a bit lower. But today’s headline 1.307 million seasonally adjusted, annualized units looks downright chilly: it’s the lowest print since May and the third-lowest of the year, down from the 1.429 million from the prior month.
Single-family homebuilding continues to lag expectations: -7% month over month and -12% year over year. Multi-family, which already commands a bigger share based on affordability issues, were down -11% from a month ago but still +15% year over year. But it is single-family housing that provides the bigger bang for the buck in terms of economic gains.
At the time this survey was conducted, mid-last month, 30-year fixed mortgage rates were around 6.5% (they are down around 6.13% currently, so perhaps we’ll see a rebound in September housing starts, which amounts to a three-year low) — lower than the 7% range we were seeing earlier this year, but apparently still too high for the average homebuyer. Also, with expectations high that rates will come down further, it keeps some prospects on the sidelines.
Building Permits, also expected to come in around 1.37 million seasonally adjusted, annualized units for the month, fell as well: to 1.312 million. This is a pretty undeniable softening in the forward-looking housing starts market, as permits are a proxy for future starts. Again, we hope to see some improvement as rates begin to come down, but it appears homebuilders remain in a "wait and see" mode.
Yesterday, we saw a Homebuilders Sentiment survey that was down -2 points. Again, affordability is the issue here. As if to put a fine point on it, the only major homebuilder with a strong outlook currently is Toll Brothers TOL, which focuses exclusively on luxury homebuilding. Many luxury homebuyers don’t even bother with a mortgage rate, and simply pay cash.
What to Expect from the Fed Meeting Today
You may have heard that today is the day the Fed will be cutting interest rates for the first time in 2025. Though there has been a shakeup in the makeup of voting members for the
Federal Open Market Committee (FOMC), it could have been more drastic: not only does Stephen Miran, an advocate of slashing rates, come onboard but President Trump had earlier attempted to fire Fed Governor Lisa Cook, who remains on the committee for this vote.
Fed Chair Jerome Powell always signals to the market what the Fed is considering; thus, we don’t see a 25 basis-point (bps) cut to be much of a mystery. The question on the actual vote will be whether Fed Governors Chris Waller and Miki Bowman will continue to dissent from Powell’s decision and advocate a 50 bps cut today (both voted for 25 bps at the last meeting, when rates wound up unchanged). Miran is very likely to vote for 50 bps or more.
Powell’s press conference afterward will be arguably more important that the 1pm FOMC decision: he will answer questions designed to take his temperature on future rate cuts — both through the end of the year and into 2026. (We also expect a new dot-plot from the Fed today.) Powell, in his 7+ years as head of the Federal Reserve, has grown accustomed to delivering his intended message in overall clear terms, even if the market reacts against it in real time.
Finally, a less-discussed matter relating to Fed policy and mortgages is the fact that the Fed has been unloading assets from its balance sheet, of which much is mortgage-based securities. And while no one advocates that the $6.6 trillion remaining on the Fed’s balance sheet is optimal, there may be some discussion — or a decision — on whether to curb the runoff on the mortgage side, in order to add further assistance to the housing market.
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