CHM Blog

Powell's pivot promises housing market hope

With the housing market having held its breath for months for news of better interest rates, Fed Chair Jerome Powell recently delivered exactly what weary homebuyers and sellers needed to hear, even though the full impact may take time to unfold.

Powell's Jackson Hole speech late last week marked a pivotal moment, signaling the Fed’s readiness to shift gears on multiple fronts. Realtor.com’s Jake Kimmel reports that the immediate catalyst is a changing economic landscape where the "balance of risks appears to be shifting." While inflation continues running above the Fed's target at 2.9% for core PCE (tariff effects are still accumulating), the labor market is showing clear signs of softening. “Job growth is slowing,” says Kimmel. “Fewer people are participating in the workforce, and unemployment has crept up to 4.2%.”

With upward price pressures competing against employment concerns, financial markets are already betting on a September rate cut. Powell was, however, careful to emphasize that monetary policy isn't following a predetermined script, saying the Federal Open Market Committee will continue making decisions based purely on incoming economic data, keeping their options open as conditions evolve.

More significant than any single rate cut, however, is Powell's willingness to make all this sound like a fundamental philosophical shift. “The Fed is abandoning its 2020 strategy of flexible average inflation targeting, returning instead to a simpler approach better suited for today's economic realities,” says Kimmel. “This new framework acknowledges that both inflation and employment risks deserve equal attention, and it clarifies how the central bank will balance these competing priorities when they pull in different directions.”

The practical meaning is what might be referred to as profound, with the Fed now more willing to act against labor market weakness, even when inflation remains slightly elevated. In the big scheme of things, this signals a more balanced approach to their dual mandate of price stability and maximum employment, and it moves away from the singular focus on inflation that dominated recent years.

With all this in play, mortgage rates are due to show genuine improvement to affordability calculations for potential buyers — after years of punishing borrowing costs that severely eroded consumers' purchasing power and left this summer particularly frustrating for everyone involved in real estate transactions.

The longer-term implications of Powell's framework shift could prove even more valuable for housing markets, according to Kimmel. “If this new approach successfully reduces economic uncertainty and stabilizes rate expectations, it could restore the consumer confidence that housing markets desperately need,” he says, reminding us that uncertainty has been perhaps the biggest enemy of real estate activity. Buyers and sellers have struggled to time their decisions amid volatile and unpredictable conditions.

Going forward, the key to jumpstarting housing market activity this fall and beyond will be tamping down this economic uncertainty. Kimmel says potential buyers need confidence that they're not catching a falling knife when they purchase homes, while sellers need assurance that market conditions won't deteriorate further if they list their properties.

Powell's more balanced approach to monetary policy may provide exactly the kind of stability the market has been thirsting for. Instead of dramatic swings between fighting inflation and supporting employment, the new framework suggests more measured, predictable responses to economic conditions. “This predictability is crucial for major financial decisions like home purchases, where buyers need confidence about future payment obligations and property values,” says Kimmel.

But none of this will happen overnight. Mortgage rates alone won't solve affordability challenges. What Powell's Jackson Hole speech does represent, however, is a meaningful shift toward policies that recognize housing's critical role in the broader economy. By committing to balance employment and inflation concerns across the board, the Fed is acknowledging that economic stability requires attention to real-world impacts on American families, including their ability to achieve homeownership.

Realtor, TBWS

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I'm among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Neutral

Mortgage rates are moving sideways. The MBS market improved by +25 bps last week. This may have been enough to decrease mortgage rates or fees. The market experienced high volatility last week.

This Week's Rate Forecast: Neutral

These are the three things that have the greatest ability to impact rates this week. Inflation, The Fed and Domestic Data.

1) Inflation: We get the Fed's preferred measure of inflation on Friday with PCE and Core PCE. On the last report it rose by 0.2% and it is expected to rise by 0.3% this time.

2) The Fed: Now that Fed Chair Powell has opened the door for a September rate cut and perhaps a cycle of slow and steady cuts, we will be paying close attention to this week's speakers.

3) Domestic Data: The releases that will get the most weight by bond traders will be Consumer Confidence and revisions to GDP. There will also be PMI, Durable Goods Orders, Consumer Sentiment and Initial Jobless claims.

Treasury Auction: There will also be Treasury Auctions on Tuesday, Wednesday and Thursday.

This Week's Potential Volatility: High

This morning markets are treading water. Volatility has started low but will increase later this week when we get key data.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

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