Interest Rates and Market Shifts
Market Review: August 4, 2025
I know we are all getting tired of the recent real estate news talking about the market being slow and stubborn as we have shifted from a Seller’s market to a more balanced or even a Buyer’s market. I have tried to stress that it’s still a difficult market for Buyers due to affordability issues ranging from insurance to taxes and interest rates. And it is still a tough market for Sellers because they don’t have dozens of Buyers knocking on their doors, yet they are reading that home prices are not dropping and they can’t understand why their house is sitting on the market, despite their agent telling them that inventory is sitting at 5 months rather than 10 days.
And now just this week we are starting to see a break in interest rates. While the Fed did NOT change its Federal Funds Rate at its July meeting, two of the board governors dissented the decision and pushed in favor of reducing the rate now rather than waiting, citing growing unemployment and slowing job and wage growth. In the days following that meeting, the US Bureau of Labor and Statistics released its July jobs numbers and sharply revised the previously reported numbers from May and June showing much less growth and sending a short shock-wave through the markets. It is the Fed's mandate to control two things; to promote maximum employment and maintain price stability (a.k.a. control inflation). This may seem like an elementary question, but if those are truly the two things that the Fed is watching, why would they meet to decide on rates days before the jobs report was due to come out? This is my biggest criticism here because now we are waiting 6 weeks for the next meeting in mid-September to see if and how much rates will change. Most people are now predicting it will drop rates ¼ to ½ point, which would likely open markets further.
Without getting into the politics and finger-pointing that followed, these developments caused volatility in the stock market and a small adjustment in mortgage rates, leading to a sudden burst of urgency with homebuyers (meaning a quick increase in showings and offers). Keep in mind that while mortgage interest rates are affected by the Fed rate, there is not an immediate or direct relationship. With the job numbers weaker, banks and lenders feel that there WILL be an adjustment to the fed rate, and so they start pricing that into rates at their discretion.
Real estate here also follows some seasonality tied to the school calendars, weather, election cycles and job trends. Summer is our high season, which is quickly coming to an end in the foothills. This is adding to the renewed buyer urgency, which seems to be hitting homes in lower to mid price points first, which are typically most affected by mortgage rates as those buyers are operating on a tighter budget. In upper price points, say above $1M, Buyers and Sellers tend to be more thoughtful and patient before reacting to headlines.
This brings me to a bigger point… While lower interest rates are seen as a great thing today for both Buyers and Sellers, it is indicative of a weaker economy and overall, probably not great for the long-term outlook for wages and growth in the country as a whole. As a real estate professional, people ask me all of the time, “Don’t you want the rates to drop?!” And my answer is mixed. While yes, it would be great for my business today, it typically is because something is not going well in our country’s economy. And lowering rates can also lead to inflation. While the ultra low rates of the early 2020’s led to a frenzy of home sales and great years for my business, it also led to my grocery bill skyrocketing. I know that this is ONE example, but I’m gluten free and there are not a ton of great, easy gluten free options if you like pizza. My favorite gluten free frozen pizza in 2019 was $7.99 - and I complained that it was $2 more than most other normal frozen pizzas. Today that same frozen pizza is $13.99!! So while I made more money then, I am paying for it now with every pizza that I eat!
So overall what can we expect? I think the answer is that we can expect the Fed to drop rates at its next meeting in September. Of course, things can change between now and then, but I do think that this rate shift, along with the change of season looming, will give the real estate market a boost as it will ease the Buyer’s costs resulting in more flexibility in offers and pricing. As I am writing this, I have seen a new energy in the real estate market within the last 5 days. While I am hopeful to predict that this increase in activity will continue through the next few months, by the time this article is published, it may prove to be a very short term boost.
With warmth and grace as always,
