The Fed’s on Hold, but Housing Isn’t

Editor's Note: There won't be any commentary on Monday as the markets are closed.

The Fed’s on Hold, but Housing Isn’t

• There were 1.2 million existing homes for sale in December.

• The number of days on the market keeps rising.

• The median sales price declined 7% since June.

While Wall Street waits for the next rate cut, housing is already rewriting the inflation story…

The past few weeks have been a lesson in patience for investors. After three rate cuts late last year, Federal Reserve officials have reminded markets that monetary policy doesn’t work overnight. Several policymakers have emphasized that the recent easing needs time—six to eight months, historically—to work its way through the economy. It’s their way of signaling they’re in no rush to cut again.

The uncertainty is amplified by what comes next. The central bank could have a new chair by June, and that transition alone adds another layer of caution. Yet the path isn’t fixed. If inflation continues to cool in the coming months, it could shift the conversation inside the Fed and reopen the door to additional easing. For now, Wall Street still expects the next reduction to arrive in June, but the stretch between now and then is where the real story will unfold.

But while Wall Street’s fixated on the Fed, it has overlooked a key inflation signal: housing sales are stuck in neutral. Redfin recently reported that properties sat on the market for an average of 60 days in December, up from 54 in 2024. The last time homes took this long to sell was 2015, when the average was 66 days.

The National Association of Realtors (“NAR”) confirmed the trend earlier this week. Existing home sales rebounded somewhat to an annualized pace of 4.4 million in December. However, they’re still hovering near the bottom of a multi‑year range. And while available inventory fell to 1.2 million, it remains around pre‑pandemic levels. That supply is pressuring prices. Lower prices should help cap inflation and give the Fed more room to ease interest rates if necessary. The added rate‑cut cushion should act as fuel for a steady rally in the S&P 500.

But don’t take my word for it, let’s look at what the data is telling us…

Each month, NAR releases its housing indicators. Existing home sales make up 85–90% of total volume, so they’re a key gauge of market health. In December, the months’ supply—an indicator representing the duration required to sell all listed homes—stood at 3.3. That’s down from the 4 reading in November. But December has historically been one of the weakest months for available supply, likely because sellers pull their listings. Even so, the figure is higher than last year’s 3.2‑month total and is in line with pre‑pandemic levels.

NAR’s time‑on‑market numbers were lower than Redfin’s, but the trend matched. Properties lingered for 73 days in December, up from 64 in November and 70 a year earlier. That’s a sign buyers are taking their time.

And prices? They’re slipping. Realtor.com says the median listing price per square foot was $220 in December, down from $222 in November and off 1% year‑over‑year. That’s the fourth straight month of annualized decline. We haven’t seen back‑to‑back months of annualized declines since mid‑2023. Put another way, sellers are feeling less confident about their ability to command a premium.

Sale prices tell the same story. NAR reports the median price of an existing home sold in December was just over $405,200, up 0.4% year‑over‑year. But that’s down 1% compared with November and far below the 25% surge in June 2021. December marked the ninth straight month of annualized growth at 2% or less. The last similar stretch was mid‑2023. In other words, the housing market hasn’t looked this soft since the Fed was still hiking.

Bottom line: inventory is capping prices. A weak job market and the Fed’s cautious stance on rate cuts are keeping buyers on the sidelines. With homeowners more likely to refinance than relocate, sales may stay sluggish for a while.

Housing prices make up about 35% of the Consumer Price Index (CPI) and 17% of the Personal Consumption Expenditures (PCE) index. Falling prices are likely to weigh on rental pricing power. That could drag down owners’ equivalent rent, a key component of both CPI and PCE. Elevated supply should help tame inflation in the months ahead and boost the odds of future rate cuts—supporting a steady rally in the S&P 500.

Five Stories Moving the Market:

The U.S. and Taiwan signed a trade deal aimed at boosting American production of semiconductors in exchange for lower tariffs, adding to the Trump administration’s efforts to bring critical industries to the U.S.; Taiwan Semiconductor Manufacturing will add several new factories to its cluster in Arizona as part of a $250 billion investment in the U.S – WSJ. (Why you should care – the U.S. will lower Taiwanese tariffs and exempt chip companies that produce goods in the U.S.)

Governors from U.S. states seeing a rapid expansion in data center construction will visit the White House to sign an agreement with the Trump administration intended to curb rising electricity costs; the agreement includes price caps for two years on future auctions in the PJM grid covering 67 million people in mid-Atlantic and inland states – Reuters. (Why you should care – the agreement means data center operators will assume a greater share of the cost for expanding the grid, potentially boosting demand for solar)

Federal Reserve Bank of Philadelphia President Anna Paulson said she feels there is no hurry to cut rates again in the near term; Paulson said she expects inflation will make meaningful progress declining to the central bank’s 2% goal by year’s end – WSJ. (Why you should care – Paulson, a monetary policy voter, is signaling she’s unlikely to vote for a rate cut until we see more progress in bringing down inflation growth)

The biggest U.S. banks cut their combined headcount last year by the most in almost a decade as executives sought to keep a lid on costs through what’s typically the biggest expense line item – Bloomberg. (Why you should care – despite the headcount reduction, these institutions, who have heavily invested in AI, are seeing profits expand and record trading revenue)

Federal Reserve Bank of San Francisco President Mary Daly said incoming U.S. economic data looks promising despite uncertainties and ‌continued risks to both the Fed's inflation and employment mandates - Reuters. (Why you should care – Daly is signaling there’s no need for the central banks to lower rates near term)

Economic Calendar:

Earnings: MTB, PNC, RF, STT

Eurozone – German CPI (Final) for December (2 a.m.)

U.S. – Industrial, Manufacturing Production for December (9:15 a.m.)

U.S. – NAHB Housing Market Index for January (10 a.m.)

Fed’s Bowman (Board Member, Voter) Speaks (11 a.m.)

U.S. - Baker Hughes Rig Count (1 p.m.)

U.S. - CFTC’s Commitment of Traders Report (3:30 p.m.)

Fed Releases Balance Sheet Updates on Commercial Banks (4:15 p.m.)