Rates Defy Fed Cut, 2026 Forecasts & Construction Slump

Welcome to Thursday’s edition of HousingMarket Daily.

Yesterday's data releases have thrown a wrench into the consensus view that the Federal Reserve's upcoming moves would immediately ease borrowing costs. Instead, we are witnessing a decoupling where mortgage rates are edging upward even as rate cut expectations remain firmly on the table.

Today’s briefing dives deep into this rate volatility, explores the just-released 2026 housing forecasts that promise a shift in value proposition, and examines the mixed signals coming from the residential construction sector.

Let’s dive into the numbers.

Mortgage Rates Defy Fed Cut Expectations In a move that has frustrated potential homebuyers and refinancers alike, mortgage rates ticked upward yesterday, diverging from the broader market expectation of relief. Despite the widespread anticipation that the Federal Reserve will announce a rate cut at its December meeting to close out 2025, the bond market is signaling caution. This disconnect highlights the complex relationship between the Fed's short-term rate targets and the long-term yields that actually drive mortgage pricing. Borrowers waiting for the "perfect" moment are finding that the window of opportunity is narrower and more volatile than predicted. Read the full analysis of the rate hike at Bankrate

30-Year Fixed Rate Holds Firm Amid Economic Data. New data confirms that the 30-year fixed mortgage rate is holding steady at elevated levels, averaging 6.33% despite the buzz surrounding the Fed's next move. This persistence in the mid-6% range is squeezing affordability for many borrowers, with 15-year rates also seeing a slight uptick to 5.45%. For financial advisors and loan officers, the current landscape requires careful navigation, as the usual correlation between economic softness and lower rates appears to be temporarily broken. Check the latest mortgage rate data at Forbes Advisor

Winter 2025 Forecast: Residential Starts to Slide. The construction outlook for the coming winter paints a sobering picture for single-family inventory. According to the latest data, total U.S. construction starts are expected to see mixed results, with a notable divergence between sectors. While non-residential projects and manufacturing hubs are projected to grow, residential construction is facing a forecasted decline of nearly 8.8%. This contraction in starts suggests that the supply crunch for single-family homes will persist well into 2026, keeping a floor under prices even if demand softens. Review the complete Winter 2025 Construction Forecast at ConstructConnect

Multifamily Sector Shows Signs of Stabilization. After a challenging two-year period of price corrections and recalibration, the small multifamily asset class is finally finding its footing. The latest investment snapshot indicates that asset pricing has begun to rebound, settling into a consistent pattern of growth as we exit 2025. This stabilization is a positive indicator for investors who have been sitting on the sidelines, suggesting that the bottom of the multifamily correction may be behind us. The sector's resilience is being bolstered by steady rental demand, even as new large-scale completions begin to taper off. Analyze the Small Multifamily Investment Snapshot at Arbor

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Exclusionary Zoning and Tariffs Dominate Policy Debate. As housing affordability remains a top voter concern, the political debate is shifting toward the structural causes of high prices: zoning and trade policy. Recent discussions in Washington have highlighted the tension between local exclusionary zoning laws, which limit density, and federal trade tariffs that increase the cost of materials. Economists are increasingly arguing that without addressing these twin pressures—regulatory barriers to building and the rising cost of lumber and steel due to tariffs—subsidies and interest rate manipulation will fail to solve the core supply shortage. Explore the debate on housing and affordability at the Washington Examiner

Realtor.com Releases 2026 Housing Forecast. The highly anticipated 2026 housing forecast has arrived, predicting a shift in market dynamics where value will be the primary driver. The report identifies top markets that are expected to outperform their pricier neighbors, offering a roadmap for buyers priced out of tier-one cities. The data suggests that while the overall national market will see stability, the real growth will occur in secondary markets that offer a balance of affordability and quality of life. This "flight to value" is expected to define migration patterns over the next twelve months. See which markets will deliver value in 2026 at Realtor.com

Central PA and Secondary Markets Eye Stability. Drilling down into regional specifics, forecasts for markets like Central Pennsylvania mirror the broader national sentiment of a "steadier" year ahead. The expectation is for a more balanced market where inventory levels slowly recover, giving buyers slightly more leverage than in the frenetic years past. This trend is indicative of what we are seeing across the Rust Belt and Midwest: a return to normalcy where price appreciation slows to a sustainable pace, allowing wages to slowly catch up to home values. Read the local market predictions for 2026 at Fox43

Consumer Sentiment: 40% Fear a 2026 Market Crash. Despite expert forecasts predicting stability, consumer sentiment tells a different, more anxious story. A startling new survey reveals that 40% of prospective home buyers and sellers are harboring fears of a real estate market crash in 2026. This disconnect between data-driven analyst projections and consumer psychology is a significant hurdle for the industry. It suggests that agents and brokers have a substantial education gap to bridge, reassuring clients that a cooling market is not synonymous with a catastrophic 2008-style collapse. Learn more about buyer and seller fears at PR Newswire

Homebuyer Demand Shows Resilience Despite Rate Headwinds. Contrary to the fears of a crash, mortgage application data suggests that buyer demand is remarkably resilient. Lender surveys indicate that purchase applications are continuing to run ahead of last year's pace, driven by gradually improving inventory conditions. This "sticky" demand proves that while rates are a major factor, the fundamental need for housing—and the desire to lock in properties before prices rise further—is keeping the market active through the traditionally slow winter months. Read the report on homebuyer demand resilience at Inman

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As we wrap up today’s edition, the narrative for the remainder of 2025 is clear: expect the unexpected. The divergence between the Federal Reserve's signaled intentions and the bond market's reality serves as a stark reminder that the path to lower rates is rarely a straight line.

While the residential construction sector faces headwinds that will likely constrain supply, the stabilization in multifamily assets and the emergence of "value markets" for 2026 offer pockets of opportunity. The challenge for industry professionals in the coming days will be managing the psychological aspect of the market—calming the fears of a crash while navigating the very real financial pressures of sticky mortgage rates.

We will be back tomorrow to close out the week with a final look at the numbers. Until then, stay informed and keep building.

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