Federal Reserve Chair Jerome Powell delivered a sobering message for would-be homebuyers this week, warning that interest rate cuts will not make “much of a difference” for a U.S. housing market weighed down by deep, structural challenges. Despite the Federal Reserve’s third consecutive rate cut of 2025, Powell made it clear that the housing sector’s struggles with inventory shortages, affordability, and elevated mortgage rates are likely to persist well into the future.
Speaking at a press conference Wednesday following the Federal Open Market Committee’s (FOMC) decision to lower the benchmark federal funds rate by 25 basis points, Powell acknowledged that monetary policy has limited ability to fix what he described as a long-standing housing supply crisis.
“Activity in the housing sector remains weak,” Powell said in his opening remarks, setting the tone for what would become one of the most closely watched portions of the press conference.
Rate Cuts Offer Little Relief for Housing Affordability
During the question-and-answer session, Powell was pressed on whether recent rate cuts could meaningfully improve affordability for younger Americans and first-time homebuyers, groups that have been disproportionately sidelined by high home prices and mortgage rates.
“The housing market faces some really significant challenges,” Powell said. “And I don’t know that a 25-basis-point decline in the federal funds rate is going to make much of a difference for people.”
His comments underscored a growing consensus among economists: while rate cuts can influence borrowing costs at the margins, they cannot solve a housing market constrained by low supply and high demand.
Locked-In Homeowners and Frozen Inventory
One of the most significant obstacles facing the housing market, Powell explained, is the so-called “lock-in effect.” Millions of homeowners refinanced or purchased homes during the pandemic years when mortgage rates were at historic lows. As a result, many are unwilling—or financially unable—to sell and move at today’s much higher rates.
“Housing supply is low,” Powell said. “Many people have very, very low-rate mortgages from the pandemic period, and they kept refinancing. So it’s expensive for them to move, and we’re a ways away from that changing.”
This dynamic has dramatically reduced the number of homes available for sale, tightening inventory even as demand remains strong in many parts of the country.
Structural Shortages Beyond the Fed’s Control
Powell emphasized that the Federal Reserve does not have the tools to address what he described as a “secular” and “structural” housing shortage that has been building for years.
“We haven’t built enough housing in the country for a long time,” he said. “A lot of estimates suggest that we just need more housing of different kinds.”
According to housing analysts, the U.S. faces a shortage of several million homes, driven by years of underbuilding following the 2008 financial crisis, rising construction costs, labor shortages, and restrictive zoning policies in many metro areas.
“Housing is going to be a problem,” Powell added. “We can raise and lower interest rates, but we don’t really have the tools to address a structural housing shortage.”
Three Rate Cuts, Little Market Response
The Fed’s latest move marked its third straight rate cut in 2025, totaling 75 basis points of reductions over the year. While financial markets welcomed the easing cycle, the housing sector has shown little sign of revival.
Mortgage rates, which are influenced more by long-term Treasury yields than by the Fed’s short-term benchmark rate, remain elevated. As a result, monthly payments for buyers are still far higher than they were just a few years ago, even when home prices stabilize or fall slightly.
Despite hopes that rate cuts would reignite housing activity, Powell acknowledged that further relief may be limited, especially with policymakers signaling caution about additional easing.
Dot Plot Signals Fewer Cuts Ahead
Adding to concerns for the housing market, the Fed released its Summary of Economic Projections, commonly referred to as the “dot plot.” The projections suggest that only one rate cut is expected in 2026, reflecting ongoing uncertainty about inflation and the labor market.
That outlook dampens expectations that mortgage rates will fall sharply in the near term, leaving many prospective buyers stuck on the sidelines.
High Prices, High Rates, and Rising Delistings
The combined pressures of high home prices, low inventory, and elevated mortgage rates have led to unusual behavior among sellers as well.
Data from Realtor.com’s latest monthly housing trends report shows a sharp increase in home delistings, as sellers pull properties off the market after failing to attract buyers at desired prices.
- Delistings in October rose 38% compared with the same month last year
- For 2025 overall, delistings are up about 45% from the same period in 2024
- Since June, roughly 6% of listings have been removed from the market each month
These trends have made 2025 the year with the highest delisting rate since Realtor.com began tracking the data in 2022.
Sellers and Buyers at a Standoff
The rise in delistings highlights a growing standoff between buyers and sellers. Many homeowners remain anchored to price expectations set during the pandemic-era housing boom, while buyers struggle to afford homes at current price and rate levels.
In some markets, sellers have begun offering record discounts or concessions, but even those adjustments have not been enough to restore momentum.
The result is a sluggish housing market characterized by fewer transactions, longer listing times, and persistent affordability challenges.
Why Mortgage Rates Don’t Fall with the Fed
One of the most common misconceptions among consumers is that Fed rate cuts automatically lead to lower mortgage rates. Powell’s remarks indirectly addressed this disconnect.
Mortgage rates are primarily influenced by:
- Long-term Treasury yields
- Inflation expectations
- Investor demand for mortgage-backed securities
While the Fed’s policy decisions can influence these factors indirectly, they do not control them outright. As long as inflation risks remain and bond markets stay cautious, mortgage rates may remain elevated even as the Fed eases policy.
The Impact on First-Time Buyers and Young Families
For first-time homebuyers, the current environment is especially challenging. Rising home prices over the past decade, combined with higher interest rates, have pushed monthly payments far beyond what many households can afford.
Younger buyers, already burdened by student loan debt and higher living costs, face steep barriers to entry. Powell acknowledged these challenges but reiterated that monetary policy alone cannot solve them.
What Could Actually Fix the Housing Crisis
While the Fed has limited influence, housing experts point to several policy areas that could make a meaningful difference:
- Increased home construction, especially entry-level and multifamily housing
- Zoning and land-use reform at the local level
- Incentives for builders to offset rising construction costs
- Infrastructure investment to support new development
Powell’s comments suggest that housing affordability is increasingly a fiscal and regulatory issue, rather than a purely monetary one.
A Long Road Ahead for the Housing Market
Looking ahead, Powell made it clear that the housing sector’s recovery will likely be slow and uneven. Without a significant increase in supply or a sharp decline in mortgage rates, affordability pressures are expected to persist.
“Housing is going to be a problem,” Powell said bluntly—a rare moment of candor that resonated across financial markets and among consumers alike.
Conclusion: Realistic Expectations for Rate Cuts
Powell’s remarks serve as a reality check for Americans hoping that rate cuts alone would revive the housing market. While lower interest rates can help at the margins, they are not a cure-all for years of underbuilding, constrained supply, and structural affordability issues.
As the Fed balances inflation risks with economic growth, the housing sector remains caught in the middle—waiting not just for easier monetary policy, but for broader changes that go far beyond the central bank’s reach.