High housing costs stall the market, leaving buyers and owners in limbo

Fresh data released this week underscored just how stuck the U.S. housing market is.

On Monday, a closely watched sentiment index of the companies that build U.S. houses returned to its 2½-year low. A day later, the Commerce Department reported that the number of new housing starts and permits for single-family homes had edged higher in July but were still near post-pandemic lows.

Housing prices remain high, as do mortgage interest rates. Reasons for optimism are scarce.

“Elevated mortgage rates continue to hold back sales of new homes, but the sharp further decline in homebuilders’ confidence since the start of this year seems partly to reflect both a hit to consumers’ confidence from the tariffs and slowing economy,” Oliver Allen, senior U.S. economist with Pantheon Macroeconomics, a research group, said in a note this week.

But even as President Donald Trump demands that the Federal Reserve cut its influential interest rates, economists are concerned that mortgage rates will remain elevated until the economy falters.

Even after the Fed lowered its benchmark interest rate by a full percentage point last year — with more cuts likely this year — home borrowing costs have remained stubbornly high, said Lance Lambert, editor-in-chief and a co-founder of ResiClub, a housing analytics firm.

It would most likely take a dramatically worsening economy to materially lower mortgage rates, Lambert said.

“A really big move down would come from a scenario where unemployment shoots up and the economy deteriorates,” he said.

The Federal Reserve can’t unilaterally lower the cost of a home mortgage for consumers, because the interest rates it sets don’t directly affect it. Still, Trump on Tuesday again called on Fed Chair Jerome Powell to lower the central bank’s key federal funds rate.

“Could somebody please inform Jerome ‘Too Late’ Powell that he is hurting the Housing Industry, very badly?” Trump wrote Tuesday evening on Truth Social. “People can’t get a Mortgage because of him. There is no Inflation, and every sign is pointing to a major Rate Cut. ‘Too Late’ is a disaster!”

Anyone expecting lower rates from the Federal Reserve to provide much relief may end up disappointed. Mortgage rates are more closely tied to investor demand for longer-term government bonds like the 10-year Treasury note. When demand for those bonds increases, their interest rates, or yield, decline — and so do mortgage rates. Demand for such bonds is driven by a host of factors, including expectations about inflation and overall economic growth, as well as views of the government’s fiscal health.

Since Trump’s re-election in November, the yield on the 10-year note hasn’t changed much, though it has experienced large short-term swings, as in the wake of Trump’s “Liberation Day” tariffs announcement in April. As of Wednesday, the yield on the 10-year note was about 4.3%. Similarly, there has been little change in mortgage rates over the same period: During the week of Election Day, the 30-year mortgage rate stood at 6.8%. Today, it’s at 6.6%.

That rate reflects the general uncertainty Trump’s mix of tariff, immigration and fiscal policies has created for the economy.

The Mortgage Bankers Association said last month that “trade and geopolitical uncertainty,” as well as debt and deficit concerns, has continued to fuel concerns about demand for U.S. bonds, which are usually regarded as “safe haven” assets because the government’s default risk is supposed to be zero. It cited Moody’s downgrade of the United States’ bond rating in May as reason for ongoing concerns about the government’s ability to borrow, though a separate note this week from S&P reaffirmed the country’s current credit rating.

In a statement, a White House spokesman said:

“President Trump’s trade deals have unlocked unprecedented market access for American exports to economies that in total are worth over $32 trillion with 1.2 billion people. As these historic trade deals and the Administration’s pro-growth domestic agenda of deregulation and The One Big Beautiful Bill’s tax cuts take effect, American businesses and families alike have the certainty that the best is yet to come.”

A Fed move to lower its key rate would provide some relief to the market on the margin, said Robert Deitz, chief economist for the National Association of Home Builders. Specifically, it would lower the cost of borrowing money for homebuilders seeking to embark on new projects.

“Monetary policy easing would help,” he said.

But it’s not clear buyers would emerge if more new homes hit the market. Homebuilders have gone to extremes to lure buyers. The homebuilders association reported Monday that the use of sales incentives was 66% in August, up from 62% in July and the highest percentage in the post-Covid period.

“The challenges the housing market has suffered through for more than a decade are fundamentally about frictions in the market that’s resulted in a structural housing deficit,” Dietz said. “Labor shortage, lack of lots, financing issues on the supply side, supply-chain issues, regulatory costs — they’re all making it take longer and [be] more expensive to build a home.”