Fed Cuts Rates, Home Construction Cools

[Derek Brickley]

Week of September 15, 2025

The Fed finally made its first rate cut of the year, a move that could ripple through mortgages and housing as job market concerns grow. At the same time, builders are cautiously optimistic even as new construction pulled back. Here’s what stood out:

🏦 Fed Cuts Rates as Labor Market Concerns Grow

After sitting on their hands all year, the Fed lowered its benchmark rate by 0.25% to 4%–4.25%. They admitted inflation is still a bit sticky, but they’re more worried about jobs starting to weaken.

👉 What this means for rates: Mortgage rates don’t follow the Fed step-for-step, but this is a clear signal. If jobs and inflation keep cooling, more cuts could follow — and that’s good news for affordability heading into the fall.

🏗️ Builder Confidence Steady, Outlook Improving

NAHB builder confidence held at 32 (still way below the 50 “growth” line). Current sales expectations were flat, but builders actually feel a little better about the next six months.

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👉 Impact on housing: Sentiment is low, but if rates keep easing, builders are betting more buyers will come off the sidelines.

🏠 New Construction Slows in August

Starts dropped 8.5% to a 1.31M pace, and permits hit a 5-year low. Both single-family and multi-family projects slowed.

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👉 Why it matters: Inventory isn’t keeping up with household formation. Even if demand picks up, supply will still be tight — and that keeps pressure under home prices.

🛍️ Consumers Keep Spending

Retail sales beat expectations with a 0.6% bump in July, led by back-to-school and online shopping.

👉 Market takeaway: Strong spending keeps the economy out of trouble, but it also makes the Fed’s inflation fight harder. Could mean rate cuts come more slowly than buyers hope.

💼 Jobless Claims Ease, But Still Elevated

New claims dipped to 231K, but continuing claims are above 1.9M for the 17th straight week.

👉 Takeaway for rates: A softer labor market is the #1 reason the Fed finally cut. If weakness deepens, expect more cuts — and more downward pressure on mortgage rates.

📅 Coming Up This Week

• New Home Sales (Wed) • Existing Home Sales + Q2 GDP final read (Thu) • Jobless Claims (Thu) • PCE inflation report (Fri — the Fed’s go-to gauge)

Catch you next week, Derek Brickley