The Fed Cut Rates—Here’s How to Make the Most of It

The financial landscape just shifted beneath our feet. The Federal Reserve has finally made its move with the first interest rate cut of the year - a modest quarter-point adjustment that carries far more significance than its size might suggest. This carefully calculated decision arrives at a critical economic crossroads, where relief in borrowing costs meets persistent inflation concerns.

What does this "risk management cut" really mean for your wallet? While mortgage rates have dipped below 6.5% for the first time in nearly a year, Fed Chair Jerome Powell explicitly warns that the inflation fight remains "far from over." Goods prices are projected to continue rising potentially through 2026, creating what experts call a "mixed reality" - cheaper loans but more expensive everyday purchases.

For homeowners, this creates a fascinating calculus around refinancing. Our deep dive into the numbers reveals you'll need at least a full percentage point difference between your current rate and today's offers to justify the closing costs. On a $400,000 mortgage, that could translate to nearly $200 monthly savings - if you meet that threshold. Meanwhile, the broader housing market remains constrained by the "lock-in effect," as millions who secured ultra-low pandemic-era rates have zero incentive to sell.

The commercial property landscape tells an equally nuanced story across its sectors. Retail properties show surprising resilience with prices up 7% year-over-year, while office spaces languish on the market for an average of 239 days before selling. Industrial properties cool from their pandemic boom, and multifamily apartments maintain steady performance - each sector reflecting a different facet of our complex economic moment.

As construction materials and labor costs continue rising alongside modest improvements in financing terms, we're left with a profound question: In this environment of persistent inflation and careful Fed adjustments, how will the interplay between building costs and borrowing costs shape affordability going forward? Join us as we untangle this economic puzzle and identify the opportunities hidden within these shifting conditions.

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Episode Transcript

Speaker 1 (00:00):
Welcome back.
Our mission today is a deepdive into, well, probably the
biggest economic headline we'veseen this quarter.
We're talking about the FederalReserve finally making a move
their first interest rate cut ofthe year, just a quarter point
adjustment.
Now I know that might soundpretty dry, maybe a bit
technical, but the sources we'vedug into for this session, they

(00:22):
all confirm this small tweak.
It has real, immediateconsequences for your debt, for
borrowing, and definitely forthe housing market.

Speaker 2 (00:31):
Yeah, it really sets up this fascinating tension,
doesn't it?
It's what our research iscalling a mixed reality.
On one hand, the cut suggests,you know, maybe some relief is
coming, especially if you needto borrow money, but then you
look at the warnings that camewith it, particularly about
inflation, and well, the pathforward looks anything but
simple.
So our job today is to cutthrough that noise.
We want to pull out two keythings for you where the real

(00:53):
opportunities might be right nowand, crucially, what warnings
the Fed wants us to really payattention to.

Speaker 1 (00:58):
Okay, let's dive right in.
Then, a quarter point cut.
What was the official reasoning?
Why did Fed Chair Jerome Powelldecide now was the moment,
after holding firm for so long?

Speaker 2 (01:09):
Well, powell was very specific in how he framed it.
He called it a risk managementcut, which is Fed speak for
trying to be proactive.
They're looking ahead, mostlyat the labor market and they're
trying to balance these two bigrisks inflation staying
stubbornly high versus the riskof the economy slowing down too
much, maybe hitting jobs.
So it's kind of a preemptivetap on the brakes or maybe

(01:29):
easing off the brakes slightlyto avoid over-tightening policy.

Speaker 1 (01:33):
Okay, but if they're cutting rates even just a bit,
doesn't that kind of imply theythink the inflation battle is
well, basically won.

Speaker 2 (01:39):
You think so.
Right, that's the logical jumpand that's exactly why the
caveat he included is soincredibly important.
Here, powell went out of hisway to state very clearly that
the fight against inflation is,and I quote far from over.
In fact, the really specificwarning that jumped out from our
sources is about goods prices.
You know, the cost of actualstuff.

(02:01):
The cost of actual stuff, thoseprices, which already drove a
lot of this year's inflationspike, are actually projected to
keep rising, not just for therest of this year, but
potentially right through 2025,even into 2026.

Speaker 1 (02:13):
Wow, okay.
So that creates a real paradox,for you know, for everyone
listening On one side, the costto borrow, maybe for a mortgage,
maybe a car loan that gets alittle bit cheaper, some
breathing room but at the sametime the cost of actually buying
things clothes, household items, just everyday stuff.
That's expected to keepclimbing for potentially another
couple of years.

Speaker 2 (02:32):
That's it Exactly.
You might save a bit on yourloan payments, but the actual
purchasing power of your money?

Speaker 3 (02:37):
Yeah.

Speaker 2 (02:37):
Still under pressure from rising prices.
That's that mixed reality wementioned up front Relief in one
area, continued pressure inanother.

Speaker 1 (02:45):
All right, let's focus on that relief side for a
moment, specifically mortgages.
Cheaper borrowing usually showsup there first.
Our sources, including thelatest data from Freddie Mac,
are showing mortgage rates havenow dipped below six and a half
percent First time in nearly ayear.
That must feel like a prettybig deal.
For anyone who's been stuck onthe sidelines waiting in nearly
a year that must feel like apretty big deal for anyone who's

(03:06):
been stuck on the sidelineswaiting.

Speaker 2 (03:06):
Oh, it's huge.
Absolutely Lower rates directlytranslate to lower monthly
payments, and that can pullhousing affordability back just
enough for some buyers to jumpin.
It is important, though, to adda little context here.
Mortgage rates aren't directlycontrolled by the Fed's
short-term rate.
They actually track much moreclosely with the yield on
long-term treasury bonds.

Speaker 1 (03:25):
Ah right, so the bond market's reaction is key.

Speaker 2 (03:28):
Exactly so.
This dip below 6.5%.
It's largely driven by themarket anticipating future Fed
moves and, you know, reactingpositively for now.
But and this is the crucial butif those inflation warnings
Powell gave start spooking thebond market again, or if
unemployment numbers shiftunexpectedly, well, this window

(03:49):
of lower rates might not stayopen for very long.
So if you're considering a move, being strategic is really
important right now.

Speaker 1 (03:55):
Okay, let's talk strategy then, specifically
refinancing.
Say you bought a house orrefinanced maybe a year or two
ago when rates were peaking near7% or higher.
Should you be rushing torefinance right now?

Speaker 2 (04:08):
It definitely needs to be a calculated move, not
just an impulse.
One of the financial memos welooked at had a really useful
rule of thumb.
Generally, refinancing onlymakes strong financial sense if
your current mortgage rate is atleast a full percentage point
higher than the rate you can gettoday.

Speaker 1 (04:21):
A full percentage point.
Why that specific threshold?

Speaker 2 (04:24):
It really comes down to closing costs.
Refinancing isn't free.
You've got appraisal fees,title insurance, administrative
costs.
If the difference in rates isless than 1%, those upfront
costs can easily wipe out thesavings you'd see in the first,
maybe even second or third year.
You need that bigger ratedifference to make sure the
long-term savings clearlyoutweigh those initial
transaction costs.
Got it?

Speaker 1 (04:43):
Let's put some quick numbers on that for you, just to
make it concrete.
Imagine you have a $400,000mortgage at a 7% interest rate.
Your monthly principal andinterest payment is around two
thousand six hundred and sixtyone tortas.
Just rough numbers.
Now, if you can refinance downto, say, six point two, five
percent, which is just insidethat one point rule, your

(05:04):
payment drops to about twothousand four hundred and sixty
three dollars a month.
That's almost two hundreddollars saving each month.

Speaker 2 (05:09):
Right.
And if rates were to fall evenfurther, maybe down to 5.75
percent, that payment drops byanother $129 or so.
That adds up to serious moneyback in your budget over time,
but again, only if those closingcosts don't negate the benefit
in the short term.
It pays to do the mathcarefully.

Speaker 1 (05:25):
So falling rates are definitely welcome news but
despite money getting a bitcheaper to borrow, our sources
are saying this isn't reallyenough to spark a quote.
Full housing revival, yeah.
Why is the residential marketstill sort of sluggish even with
these better rates?

Speaker 2 (05:40):
Yeah, the core problem hasn't changed.
It's supply, or rather the lackof it.
Housing inventory is stillincredibly tight and the main
reason is what economists callthe lock-in effect.
Think about it.
Main reason is what economistscall the lock-in effect.
Think about it Millions ofhomeowners refinanced or bought
during 2020, 2021, maybe early2022, and locked in ultra-low
mortgage rates, sometimes 3%,maybe 4%.

Speaker 1 (06:02):
Well then, unbelievably low rates.

Speaker 2 (06:03):
Exactly so.
They have almost zero financialincentive to sell their current
home, give up that amazing rateand then take out a new
mortgage, even if it's at 6.25%or 6%.
The math just doesn't work formost people.

Speaker 1 (06:14):
So they stay put, which means fewer homes listed
for sale.

Speaker 2 (06:17):
Precisely this keeps supply incredibly constrained,
and what we're seeing now isthat, even with slightly lower
rates, properties are tending tosit on the market longer.
Sellers are having to be morerealistic.
More price cuts are needed toattract buyers who are still
quite cautious, and this kind ofstagnation in residential it
naturally leads us to look atthe broader property market

(06:39):
signals.
You know where's the financing?

Speaker 1 (06:41):
What's lender sentiment like overall, which
means we need to glance over atcommercial realof in CRE often
tells us about overall lendingattitudes and economic
confidence kind of a canary inthe coal mine.
And what's really strikinglooking at the August 2025
Crexie report that's a majorsurvey of commercial deals is

(07:02):
just how different things lookacross the various CRE sectors.
It's not one single marketpicture at all.

Speaker 2 (07:07):
Not even close.
It's like four completelydifferent stories playing out
simultaneously.
Let's break it down.
Ok, first, maybe surprisinglyis retail.
It's like four completelydifferent stories playing out
simultaneously.
Let's break it down.
Ok, first, maybe surprisinglyis retail.
It's actually holding up prettywell.
Sold prices are up almost 7%compared to last year,
especially for things likegrocery, anchored shopping
centers or discount retailers.
Necessity based stuff seemsresilient.

Speaker 1 (07:27):
Wait.
Retail prices are up 7% yearover year.
That feels counterintuitivewith all the talk about
consumers pulling back.

Speaker 2 (07:34):
It really speaks to investors chasing stable,
income-producing assets.
Right now, reliable tenants aregold, although the report does
mention that potential newtariffs are a growing concern,
making leasing negotiationstrickier for retailers heavily
reliant on imported goods.
So not without its ownpressures.

Speaker 1 (07:51):
OK.
So retail is OK.
What's the flip side?
What's struggling?

Speaker 2 (07:59):
Oh, the clear laggard is office.
No surprise there really,office properties are now
sitting on the market for anaverage of 239 days before
selling.
That's up almost 20 percentfrom just last year.
It just shows how hesitantbuyers are and lenders are
demanding much higher returns,higher yields, to compensate for
the perceived risk in officespace right now.

Speaker 1 (08:14):
Makes sense.
And what about industrial?
The big warehouses and logisticcenters that were booming
during the pandemic e-commercesurge?

Speaker 2 (08:21):
Industrial is definitely showing signs of
cooling off.
Sold pricing is still up,actually quite strong, at nearly
8.5 percent year over year, butinvestor appetite has become
much more selective.
There's nervousness aboutpotential overbuilding,
especially in some secondary,smaller markets where maybe the
expansion got a bit ahead of theactual long-term demand.

Speaker 1 (08:41):
OK, that leaves multifamily Apartment buildings.
How's that sector holding up?

Speaker 2 (08:46):
Multifamily seems to be the steadiest ship in the CRE
storm.
Right now Pricing is taking upmodestly.
Deal activity.
The number of sales is strongerthan in most other commercial
sectors.
Good quality, well-locatedapartment communities are still
highly sought after.
Finding financing for thosedeals seems to be less of a
challenge compared to, say,office.

Speaker 1 (09:04):
And that multifamily resilience.
That actually tells ussomething really important about
the residential side too,doesn't it?
Strong demand for rentalssuggests that high mortgage
rates are still keeping a lot ofpotential homebuyers on the
sidelines.
Right.
They're renting instead, whichprops up the multifamily market.

Speaker 2 (09:21):
Absolutely, it's a direct link.
High homeownership costs fuelrental demand.

Speaker 1 (09:25):
And the caution we see from lenders in the office
sector demanding those higheryields.
That reinforces the idea thateven with this small Fed rate
cut, overall credit conditionsremain pretty tight.
Lenders are still being verycareful about who they lend to
and for what kind of properties.

Speaker 2 (09:40):
So let's try to pull this all together.
What's the big picture takeawayfor you?

Speaker 3 (09:44):
Well, the borrowing environment just got marginally
better, slightly more favorable,thanks to the Fed's move.
They've signaled they'rewatching the risks, but those
core challenges haven'tdisappeared.
Housing affordability is stilla major issue.
Powell's warning about risinggoods prices means inflation
risks are still very much aliveand getting financing, whether

(10:07):
for a home or a commercialproject, is still tougher than
it was a few years ago.
So buyers might find someopportunities, maybe more
motivated sellers in certainareas.
But that broad market surgestill held back primarily by
that lack of homes for sale.

Speaker 1 (10:19):
A really clear summary of what is definitely a
complex economic picture rightnow.
Lots of cross currents.
So here's a final thought foryou to consider connecting those
two big warnings.
We heard Powell specificallyflagged rising goods prices
continuing into 2026.
That includes things likelumber, concrete, appliances,
all the stuff needed to buildhomes, and labor costs too.
So the question to mull over isthis If the actual cost to

(10:43):
build a new home keeps risingsignificantly for the next
couple of years, how much does aslightly lower mortgage rate
really help solve thefundamental inventory problem?
Does cheaper financing matterif the price tag of the house
itself keeps going up because itcosts so much more to construct
?
That interplay between buildingcosts and borrowing costs, that
feels like the key dynamicshaping the market going forward
.