The Federal Reserve delivered its third straight 25-basis-point rate cut on Dec. 10, bringing short-term rates to 3.5–3.75%. Despite the move, Fed officials signaled they’re now in “neutral” mode and are likely to pause additional cuts. The decision was divided, with three dissenting votes however Chairman Powell did have more of a “Dovish” tone and message.

Fed cuts don’t directly move mortgage rates, but since the Fed was speaking about labor market weakness and taming inflation, bonds improved in price and mortgage rates began to slightly improve after the fed meeting. Upcoming economic data delayed by the government shutdown could shift expectations ahead of the January meeting, but for now a January Fed cut is less probable.

Affordability is expected to improve gradually even if rates stay in the 6% range, thanks to rising incomes and slower home-price growth. Danielle Hale, chief economist at Realtor.com, forecasts buyers may soon spend under 30% of income on a typical home for the first time since 2022, which could help boost 2026 home sales from their current 30-year lows. But economists caution that a weakening labor market may continue to dampen demand.
Overall, 2026 is expected to be a transitional year with slightly higher sales in a more inventory-rich market.

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