Cranky consumers and a Fed rate cut
Key takeaways
- The Fed cut rates for the third straight meeting to 3.5-3.75%, but mortgage rates aren’t following as hoped.
- Consumer sentiment near historic lows (53.3), yet holiday spending is up 4.1% on Black Friday.
- House flipping down 32.4% since 2022 as investors face high costs and tight inventory.
- Expected inflation dropped to 4.1% (from 4.5% in November), showing improving outlook.
- Current interest rates available with Mortgage Craft are at the bottom of the email.
A positive note
The National Association of Realtors chief economist projects a 14% increase in home sales in 2026 vs 2025. Realtor.com’s research projects a smaller 1.7% increase in home sales for 2026, which is still a growth trend, albeit not the double-digit growth of NAR’s estimate.
Mortgage Craft’s opinion on the subject, and we’re far from experts, is that hopefully we see a slightly better 2026 than 2025. NAR’s estimate seems like extraordinary growth, which doesn’t track with what we’re hearing. But we would love to be wrong!
What we’re hearing from buyers and realtors is that there is a desire to buy and sell. There’s also hesitation with the economy that buyers feel. As you’ll read below, there are wealthier people who aren’t feeling inflation’s effects and there are middle class and lower income people who are.
There’s still hope out there and good news! We’re holding onto them and encouraging others to do the same. 2025 was one of our best years ever because of strong partnerships. And we trust 2026 has more in store.
The Fed cut rates, but mortgage rates aren’t cooperating
Here’s the disconnect buyers are feeling: The Federal Reserve cut the benchmark rate to between 3.5% and 3.75% this week, the third consecutive cut in 2025. Mortgage rates have not dropped accordingly with each rate cut.
Why? The 10-year Treasury yield closed at 4.163% after the Fed’s announcement. That’s higher than the 4.01% we saw before the Fed started cutting rates in September. Long-term rates drive mortgage costs, and they’re moving on inflation concerns, not Fed policy.
What does this mean for buyers?
- Rate relief has been limited. Buyers hoping the Fed cuts would dramatically lower their monthly payments are still waiting.
- Affordability remains challenging. At Mortgage Craft, we’re seeing first time buyers need to get creative with down payment assistance programs and exploring different loan products to make the numbers work.
What does this mean for sellers and realtors?
- The buyer pool is still constrained by affordability. The Fed signaled it may pause further cuts, meaning we shouldn’t expect dramatic rate improvements in early 2026 which would make mortgage payments accessible to more buyers.
- Pricing strategy matters more than ever. Homes sitting on the market are seeing price cuts, but realistic pricing from day one is the better path.
The tale of two economies continues
Here’s the strange reality: Consumer sentiment is at 53.3, near historic lows and down from over 70 in January. People feel terrible about the economy. Yet Black Friday sales were up 4.1% and holiday spending is strong. And online sales between Thanksgiving and Cyber Monday [were 7.7% higher than 2024.](https://www.wsj.com/business/retail/two-types-of-shoppers-are-powering-holiday-spending-the-wealthy-and-deal-hunters-f55ae08e?mod=saved_content#:~:text=Online sales between Thanksgiving and this past Monday rose 7.7%25 compared with last year%2C according to Adobe Analytics data.)
The catch? There are essentially two markets. Upper and middle-income buyers are still spending, while lower-income households are making trade-offs and waiting for the best deals. Less-affluent buyers are pulling back on routine purchases to prioritize major expenses.
What does this mean for Lancaster County?
- Qualification letter quality matters. We’re seeing more credit issues when we pull reports—delinquencies on student loans, auto loans, and credit cards are creeping up. Buyers need clean financial pictures.
- First-time homebuyers need extra help. The lower-income buyer segment is under the most pressure. These buyers need realistic expectations and may benefit from down payment assistance programs.
- Move-up buyers with equity are in better position. If a seller has significant equity in a current home and good credit, they’re in the “still spending” category.
Market news
The Federal Reserve Board had another historically divided meeting. There were three dissenting votes on the direction the Board took, the most since 2014. What this tells us is that even the experts are having a hard time reading what’s going on in the economy from the data.
Looking ahead: What’s moving rates this week
Several economic reports could impact mortgage rates in the coming days, the biggest of which will be the consumer price index report on inflation. This could really swing mortgage rates in one direction or another. If you’re under contract, check to see if you should lock your interest rate depending on this week’s trends.
The Fed’s next meeting isn’t until late January, but these data points will influence where mortgage rates head into the new year.
Monday, December 15
- Home builder confidence index
Tuesday, December 16
- U.S. unemployment rate
Thursday, December 18
- Initial jobless claims
- Consumer price index (inflation report)
Thursday, December 19
- Existing home sales
