THE WEEK IN REVIEW

Welcome to my weekly newsletter featuring a personal note on the ever-evolving world of real estate along with a few news-worthy updates. Enjoy!

the fed and mortgage rates

The next Federal Open Market Committee meeting starts today and tomorrow the Fed will make a decision on interest rates, which have remained unchanged since December 2024.The Fed doesn't directly set mortgage rates. BUT a cut in the "Fed Funds" rate usually leads to lower mortgage rates for the reasons outlined below.

The Fed lowered rates three times last fall: in September, November, and December. The September cut was a 0.5 percentage point reduction, the first in over 4 years. Mortgage rates dipped to 6.12% in October, but then rose again. In 2025, mortgage rates have remained stubbornly high, averaging 6.7% to 6.9%.  Here is why:

1. The federal funds rate impacts the overall cost of borrowing for banks. When it's cheaper for banks to borrow, they may in turn offer lower rates on loans to consumers, including mortgages and credit cards.

2. Mortgage rates are more closely tied to the yield on the 10-year U.S. Treasury note. If the Fed lowers rates and investors expect slower economic growth or lower inflation, they may invest in safer assets like Treasury bonds, which can drive down yields (supply and demand) and, consequently, mortgage rates.

3. If a Fed rate cut fuels consumer spending and raises prices - inflation - this can counteract the effect of a Fed rate cut, as lenders may demand higher interest rates to offset the eroding value of money.

4.  The overall health of the economy, including unemployment rates and economic growth, plays a significant role in determining mortgage rates.

5.  Investor expectations and sentiment about future monetary policy and economic performance can also influence the bond market and, in turn, mortgage rates.

6.  If the demand for mortgages is high, lenders may be less inclined to significantly lower rates, even after a Fed cut. Again the laws of supply and demand apply here.

So while a Fed rate cut often triggers lower mortgage rates, broader economic factors may influence how mortgage rates are impacted. Regardless, when Fed rates drop, so do rates on credit cards and other consumer debt. This puts more money in the pockets of the consumer. And that's generally a good thing!

real estate & the news

• The Housing inventory trend seems to be global: 75% more UK homes were on the market in May and June than in the same period in 2021. (FT)

• After 3 years of anemic transaction volumes, large real estate deals are making a comeback, according to Lowell Baron CEO of Brookfield Asset Management’s real estate business who has sold $13 billion of property already this year, including major deals in the US, Spain and Australia, in a sign that liquidity is returning even for larger portfolios....up from $3 billion in the first half of last year and just $2 billion in the first 6 months of 2023. (Bloomberg)

• So far in 2025, investors who buy homes to flip or rent out have made up about 30% of purchases of both existing and newly built single-family homes, the highest share in 14 years. Small investors made up about 25% of these home purchases while large investors accounted for about 5%. (WSJ)

• A 15% tariff will now be applied to most goods coming in from Europe to the US:  it remains to be seen if this cost will be passed on fully or partially to the consumer. Many luxury building supplies are sourced in Europe including appliances like Miele, Gaggenau, La Cornue, and furniture, kitchen cabinets, faucets, light fixtures, etc, etc. (CNBC)

around dc

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August 18-24th

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Lee Arrowood

Principal, Arrowood Advisory at Compass

M: 202.251.3175

O: 202.448.9002

lee.arrowood@compass.com

+$173M Sold In 2023

#3 Team Lead 2022