Key Takeaways
- The Federal Reserve held interest rates steady at 3.5-3.75% and signaled a longer pause on rate cuts, prioritizing economic stability over further reductions. This means mortgage rates will stay very close to where they are today for at least the next few months (see them at the bottom of the email).
- New home construction hit its lowest pace since May 2020, with builders pulling back due to market uncertainty and slower sales.
- First-time homebuyers are finding opportunities in Northeast markets, with nearby Harrisburg, PA ranking #2 nationally for affordability and amenities.
- Housing market conditions vary widely by region—the national market is “balanced,” but local conditions tell different stories.
The Fed’s holding pattern: Stability over speed
This week, the Federal Reserve held interest rates steady at 3.5-3.75% for the first time since last July. Fed Chair Jerome Powell made it clear: they’re comfortable staying put for a while. With economic growth strengthening and the labor market showing signs of stabilization, the Fed sees no urgency to cut rates further. This means mortgage rates will stay very close to the high 5% and low 6% range for most buyers.
Why no rate cut? In Powell’s words, “We’re well positioned.” Recent data painted a brighter picture than expected—strong GDP growth, stable unemployment, and inflation that’s elevated but no longer worsening. The Committee emphasized they’re not rushing to cut rates, as doing so could risk re-igniting inflation.
Two dissenting votes came from governors who actually wanted lower rates, but the decision had broad support overall. The key takeaway: expect rates to stay in this range for several months, potentially through the spring.
What does this mean for Lancaster County?
- For buyers: Rate stability means predictability. You can plan your budget without worrying about sudden changes. While rates aren’t dropping dramatically, they’re also not climbing—this is the “new normal” for now.
- For sellers: Stable rates should gradually bring more buyers back to the market as confidence builds. The lock-in effect that’s kept many sellers on the sidelines may continue to ease throughout 2026.
- The bigger picture: As Realtor.com‘s research notes, mortgage rates respond more to long-term Treasury yields than to Fed policy. This week’s decision reinforces that mortgage rates will be driven by market forces, not Fed cuts.
New construction slows dramatically
Builder confidence is waning. According to the latest Census Bureau data, new home construction fell to its lowest level since May 2020 in October 2025. Housing starts dropped to a seasonally adjusted annual rate of 1,246,000 units, down 7.8% from last year.
Why are builders pulling back? It’s a classic case of supply meeting tepid demand. With mortgage rates still elevated and buyer uncertainty growing, builders are facing an inventory glut in some regions—especially in the South and West—leading to rising time on market. Faced with compressed margins from tariffs and labor shortages, many builders are shifting focus to larger multifamily projects rather than single-family homes.
Regional differences are stark:
- Northeast: Single-family starts up 17.2% year over year—builders are responding to strong demand signals in our region
- West: Single-family starts down 25.9% year over year—inventory has grown well above pre-pandemic levels
Permitting for multifamily projects (5+ units) actually reached a 2025 high, up 17.9% year over year, while single-family permitting near 2025 lows, down 9.4%.
What does this mean for Lancaster County?
- For buyers: Less new construction nationally means the existing home market becomes even more important. In the Northeast, where new construction is actually growing, there may be more options—but competition remains for well-priced existing homes.
- For sellers: With builders pulling back and a national shortage of roughly 4 million homes, the long-term fundamentals support home values. Supply constraints won’t disappear overnight, so your home’s value should stay the same or appreciate in the coming years.
Lancaster’s neighborhood shines for first-time buyers
Great news for our region: Nearby Harrisburg, PA ranked #2 nationally for first-time homebuyers in 2026, and Pittsburgh came in at #9. This research from Realtor.com evaluated over 10,000 locations based on affordability, amenities, housing availability, and economic health.
Why the Northeast is winning:
- Affordability: Harrisburg’s median listing price is $151,999, with a price-to-income ratio of just 3.0 for young professionals (25-34 year-olds). At current mortgage rates, the typical home costs just 19.7% of median income for this age group.
- Urban advantages: Six of the top 10 markets are the main cities of their metros, not suburbs. Shorter commutes, better amenities, and walkable neighborhoods are drawing buyers.
- Stronger fundamentals: Northeast markets have tighter inventory (still below pre-pandemic levels) and more stable price trends compared to oversupplied Southern and Western markets.
While Lancaster County wasn’t specifically ranked in this study, we share the same regional advantages—affordability relative to major metros, strong local amenities, and a housing market that’s held up better than national trends.
What does this mean for buyers and sellers?
- For first-time buyers: Lancaster County offers many of the same benefits that put Harrisburg at #2—affordability, community, and economic stability. If you’ve been on the fence, the fundamentals favor our region. Housing prices are also not forecasted to drop in the Northeast, so every year you wait, housing will get more expensive.
- For sellers: Our market benefits from these positive regional trends. As first-time buyers look to the Northeast for opportunities, Lancaster remains an attractive, accessible option. If you’re looking to trade up to your forever home, you should have a larger pool of buyers who can afford your home.
Market News: What’s moving rates in the week ahead
With the Fed on pause, mortgage rate movements will be driven by economic data releases and Treasury market reactions. Here’s what to watch:
Monday, February 2
- ISM Manufacturing Index
Wednesday, February 4
- ADP Employment Report
- ISM Services Index
Thursday, February 5
- Initial jobless claims
Friday, February 6
- January Employment Report (Jobs Report)—the biggest data release of the month
- U.S. employment report
- U.S. unemployment report
We’ll keep you updated on any major market movements. As always, if you have questions about how this impacts your buying power or selling strategy, reach out to us at Mortgage Craft.
