December 16, 2025 – The Fed Speaks and The Predictions Keep Rolling

Economic Commentary

The Federal Reserve met for the last time in 2025 last week and the result was a decrease in their benchmark interest rate of 0.25%.  Overall, the decision was not surprising despite the lack of recent data the Fed could rely upon. As expected, they relied upon secondary reports such as flagging consumer confidence and the private payroll report in order to conclude that they ought to act with an air of caution in case the economy is slowing more than expected – despite inflation continuing to be stubborn. Fed Chair Powell referred to the decrease as a “close call” as the Fed balances risk to the economy vs. inflation risks.

Since the markets were already anticipating the Fed lowering rates, the bond markets did not react significantly at least initially. However, the trend of lower long-term rates such as home loans certainly is supported by the move. Most predictions coming in for 2026 are forecasting that mortgage rates will continue to drift downward in 2026, though the amount of movement is expected to be tempered unless we receive good news on the inflation front. For example, the Mortgage Bankers Association is expecting the average of 30-year mortgage rates to remain above 6.0% for all of 2026. On the other hand, Fannie Mae is a bit more optimistic in this regard and sees the 30-year rate moving slightly below 6.0% by the end of 2026.

As these predictions roll in, we continue to remind our readers that all predictions are just educated guesses. Not to say that these economists are not qualified.  But it is hard to predict the future. We can’t anticipate events that could interfere with out predictions – from natural disasters to wars (including trade wars).  We just went back to our December 2024 edition of the Real Estate Report which disclosed that most prognosticators were predicting that mortgage rates would average near 6.0% at the end of this year.  Rates averaged a bit higher than expected this year.  So, perhaps the seers will be wrong in the other direction this coming year and rates will fall further than expected.  Check with us in a year, and we will be happy to tell you what really happened!

Weekly Interest Rate Overview

The Markets. Mortgage rates moved up early last week but fell after the Fed meeting concluded, which was after the survey period was closed. According to the Freddie Mac weekly survey, 30-year fixed rates rose to 6.22% last week from 6.19% the previous week. In addition, 15-year loans increased to 5.54%. A year ago, 30-year fixed rates averaged 6.60%, 0.38% higher than today. Attributed to Freddie Mac: “The average 30-year fixed-rate mortgage is well below the year-to-date average of 6.62%, providing some sense of balance to the housing market.” Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Real Estate News

Cotality reported annual single-family rent growth in September hit its lowest point since 2010. Single-family rent prices in September increased just 1% from September 2024. “The story of the single-family rental market is one of deceleration at the national level, but with significant local nuances. Annual single-family rent growth in September hit its lowest point in over 15 years–since June 2010. This is welcome news for renters struggling with affordability,” said Molly Boesel, senior principal economist at Cotality. “However, despite this slowdown, single-family rents are still substantially higher, up 29% over the past five years, adding about $7,300 per year to the national average rental bill, a financial burden that has consumed about one-third of the increase in median family income over that time.” Broken down by sector, rent for high-end properties increased 1.3% year-over-year in September, a drop from the 3.2% gain in September 2024. Low-end rental property prices were up 1%, compared with 2.5% year-over-year in September 2024. “The national slowing does not tell the whole story. In many large metros, market conditions have shifted enough to cause rent declines, with 26% of the largest 50 metros seeing decreases in our Single-Family Rent Index,” Boesel continued. “Markets like Dallas and Miami showed large decreases in the SFRI. Yet, for renters in these markets, the historical pain remains acute, as five-year rent increases in Miami and Dallas were $850 and $610 per month, respectively. This underscores the challenge: while the pace of growth is easing and even falling, the cumulative impact of past rent hikes continues to put immense pressure on household budgets.”  Source: Cotality

America’s adaptive reuse boom hit new heights in 2024, turning a record number of old buildings into apartments as demand for housing met a glut of underused properties. Nearly 25,000 apartments were completed from converted structures last year, which is about a 50% greater amount than in 2023 and double the total in 2022.  Hotels once again led the way, accounting for more than one-third of all new conversions, while office spaces made up nearly one in four. Developers transformed more than 9,000 hotel rooms into apartments, setting an all-time record, and repurposed nearly 6,000 former offices into housing. School buildings and old industrial sites also saw renewed life, with classroom conversions quadrupling compared to the year before. Predictions for the future are tentatively hopeful, as the momentum currently shows no signs of slowing. As things stand now, about 181,000 apartments are currently planned or underway from adaptive reuse projects across the country, which is an impressive 19% increase from last year.  Most of these will come from former office buildings, followed by hotels and industrial spaces. Manhattan leads with roughly 11,000 units in the pipeline, ahead of Los Angeles, Chicago, and Washington, D.C. These developments make clear that adaptive reuse will remain a key strategy for easing housing shortages while reviving urban centers.  Source: MP Daily

While headlines suggest recent data for tourism shows a significant decline in general travel and “snowbird” visits, largely due to political tensions, a weak Canadian dollar, and new travel rules –Canadians remain one of the top foreign buyers of U.S. property, accounting for 14% of all international purchases in a recent report. Moving money to the U.S. may seem counterintuitive, but relative to major cities in Canada, such as Toronto and Vancouver, U.S. property prices enable Canadian dollars to go further. Someone buying a single house in Canada may be able to spread that same downpayment across multiple properties in certain U.S. markets, such as cities in the Midwest and Sun Belt, and expect higher returns. Another key component is that the investment math tends to make more sense with lower-priced properties. Places with higher price-to-rent ratios, where rent is relatively high when compared to the cost to buy a property, offer cash flow opportunities that would be hard to come by without paying all-cash in expensive Canadian metros. On top of that, Canada has very high property taxes that eat into ROI, compared to some U.S. states. The final piece to this is that Canadians who own U.S. property preserve their wealth in a stronger currency, in an asset class that has tripled in value over the past 20 years. These gains can then be transferred back to Canadian dollars at favorable rates. In addition, lower income and sales taxes in many U.S. states, coupled with warmer weather, are major draws.  Sources: CBC and HousingWire