Powell: ‘Housing market faces some really significant challenges’ that a 25 basis-point rate cut won’t resolve

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After announcing another 25-basis-point cut to the Federal Reserve’s short-term rate, Fed Chair Jerome Powell—whose term ends on May 15, 2026—was asked about the U.S. housing market.

Powell acknowledged that recent rate cuts won’t restore affordability to the U.S. housing market. He suggested that the country needs to build more housing units—and noted that central bankers “don’t really have the tools to address” it.

Fed Chair Jerome Powell told reporters on December 10, 2025:

“So the housing market faces some really significant challenges, and I don’t know that, you know, a 25 basis point decline in the federal funds rate is going to make much of a difference for people.

You know, housing supply is low. Many people have very, very low, low, low rate mortgages from the pandemic period, and they kept refinancing and caught the really low. So it’s expensive to them to move. And you know, we’re a ways away from that changing.

Also, we’re just, we haven’t built enough housing in the country for a long time, and so a lot of estimates suggest that we just need more housing of different kinds. So housing is going to be, you know, a problem, and you know, really the tools to address it are we can, we can raise and lower interest rates, but we don’t really have the tools to address, you know, a secular housing shortage, a structural housing shortage.”

While Powell appears to suggest that a “structural housing shortage” is the underlying issue in the U.S. housing market, he acknowledged back in October that the Fed may have kept purchasing mortgage-backed securities (MBS) for too long during the Pandemic Housing Boom—though he added that it’s “challenging to determine” if and by how much it actually helped overheat the housing market during that period.

Over the past year-plus, as the U.S. labor market has softened—with the last published U.S. unemployment rate (4.4%) a solid clip above the cycle low in April 2023 (3.4%)—and as the Federal Reserve has sought to move from restrictive toward neutral policy by making several cuts to short-term rates, we’ve also seen long-term yields and mortgage rates come down from their cycle highs.

While Powell may be right that Fed policy changes right now alone are unlikely to return the U.S. housing market to average levels of affordability—we’re currently in the upper band—it’s worth noting that the recent mild decline in long-term interest rates, which the Fed does not directly set but which are influenced by financial market’s expectations for the economy and future Fed policy, has been one of the levers that has helped nationally aggregated housing affordability improve a little this year.

Indeed, last week the average 30-year fixed mortgage rate, as tracked by Freddie Mac, was 6.22%—well below the cycle high of 7.79% reached in October 2023.

“The bottom line is it appears 30-year mortgage rates will be in current range for some time barring a recession or a crisis,” wrote housing analyst Bill McBride earlier this week.

Mortgage rates could still drift modestly lower next year, particularly if the spread between the 10-year Treasury yield and the 30-year fixed mortgage rate continues to compress. But the easiest mortgage-rate declines may already be behind us.

To see a truly material downward shift in mortgage rates next year, many analysts believe it would take a more significant weakening in the labor market.

Hypothetically speaking, if the unemployment rate were to spike and the economy weakened, financial markets could respond with a flight to safety—driving up demand for Treasuries, which would push bond prices higher and yields (including mortgage rates) lower. At the same time, the Fed could respond with emergency cuts to the federal funds rate and, if the downturn were severe enough, potentially resume purchases of mortgage-backed securities (MBS), adding further downward pressure on mortgage rates.

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