Interest Rate Shifts and Housing Affordability

If you follow housing headlines, it can feel like mortgage rates jump every time the Federal Reserve speaks. The reality is more nuanced. Mortgage rates don’t track the Fed’s policy rate one for one; they primarily move with longer-term bond yields, especially the 10-year U.S. Treasury, plus a spread that reflects risk, liquidity, and investor demand for mortgage-backed securities (MBS). Freddie Mac’s rate survey and bond market data show this clearly: rates eased after the Fed began cutting, but they also bounced when the 10-year Treasury yield climbed on shifting expectations. In short, the Fed’s direction influences housing, but the level of mortgage rates is set in the broader bond market.

Mortgage rates vs. the Fed rate

• Mortgage rates ≈ 10-year Treasury + spread. Freddie Mac notes a positive, but not exact, relationship with the 10-year. The spread widens and narrows with market stress, prepayment risk, and liquidity. Richmond Fed research shows spreads widen in stressed periods and shrink as risk fades.

• Why a Fed cut doesn’t always mean lower mortgages. Mortgage pricing reflects expectations for growth and inflation over many years. If a Fed move alters those expectations, or disappoints them, the 10-year can rise, nudging mortgage rates higher even after a cut. Recent moves illustrate this dynamic.

• A simple way to track it: Watch the 10-year Treasury and the weekly Freddie Mac PMMS rate. When the 10-year falls and the spread stays steady, mortgage rates usually follow.

  
  

What that means for affordability

Falling mortgage rates reduce monthly payments, directly boosting buying power. A useful rule of thumb: every 50 basis point drop in a 30-year fixed rate increases what a buyer can afford by about five percent at the same payment. But there’s a catch: when rates fall and demand jumps, home prices often firm up, offsetting part of the benefit.

Right now, average 30-year rates are in the mid-6s, well below 2023 peaks. They are largely tracking the 10-year’s drift and expectations for gradual Fed easing. Volatility is likely; the path depends on inflation data, growth, and how wide the mortgage-Treasury spread remains.

You can also look at forward pricing of fixed-rate mortgages at reduced interest rates. Builders are calculating what it costs to buy down a mortgage to benchmark levels like 4.99 percent. The cost of these buydowns is a forward indicator of where the market expects rates to settle, and how much incentive is needed to stimulate demand.

Housing starts and the outlook for 2026–2027

Housing starts are the supply pipeline two years out. In August, national starts fell 8.5 percent month over month and permits dropped 3.7 percent. Builders are discounting homes to move inventory now, but if this slowdown persists, fewer homes will be delivered in 2026–2027.

• Short run (2024–25): More incentives and some price cuts as builders clear backlog.

• Medium run (2026–27): Fewer completions combined with steady demand, especially in growth markets like Charlotte, mean tighter supply and higher prices. Even if mortgage rates ease, price gains could still erode affordability.

  
  

For investors, this means affordability may improve in the short run, but supply shortages could create upside pricing in 2026–2027 for those positioned with inventory.

Charlotte vs. the U.S.

• Prices and pace. Charlotte’s median sale price was about $421k in August 2025, up roughly 3 percent year over year, with about 52 days on market. This is more moderate than many Sun Belt peers and keeps Charlotte near national medians rather than coastal extremes.

• Local affordability. NAHB/Wells Fargo’s metro affordability ranking for the Charlotte–Concord–Gastonia MSA has slipped modestly but remains far better than high-cost coastal metros. Translation: Charlotte is still attainable, especially for buyers relocating from more expensive markets.

• Why Charlotte holds up better:

  1. Charlotte’s job growth consistently outpaces the national average, supported by financial services, tech, and advanced manufacturing. This inflow of high-paying jobs continues to attract new residents.

  2. In-migration from higher-cost states provides a steady buyer pool. Families moving from New York, California, or Washington DC often view Charlotte housing as a bargain even at today’s rates.

  3. The metro’s development pipeline is more balanced than in many Sun Belt cities. Charlotte has not overbuilt relative to population growth, which helps prevent severe inventory swings.

     
     

Practical takeaways for alternative investors

• Watch the 10-year Treasury: It is the most reliable leading indicator of mortgage rate trends.  Also track buydown pricing: Monitoring the cost to offer a 4.99 percent fixed rate is an effective forward-looking tool for market expectations.

• Expect tighter supply in 2026–2027: Fewer starts today mean scarcity pricing later. Investors with pipeline projects will benefit.

• Charlotte advantage: The city’s affordability and growth trajectory create a resilient investment environment with better downside protection than national peers.

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Bottom line from Battle Capital

At Battle Capital, we see two dynamics shaping our strategy:

1. Short-term opportunity. Both national and local builders are discounting to clear inventory and manage longer sales cycles. We can advance projects with conservative underwriting while the market stabilizes.

2. Medium-term upside. By 2026–2027, today’s weak housing starts should translate into tighter supply and stronger pricing power. Our goal is to deliver units into that environment and capture scarcity value.

   
   

How we’ll approach it:

• Pipeline discipline: Maintain a forward pipeline in Charlotte and other growth markets, timed for 2026–2027 delivery.

• Product differentiation: Demand in Charlotte is still strong, but buyers have more leverage. We are delivering better quality homes to stand out against more commoditized builders.

• Renovation focus: Higher rates are keeping many homeowners in place, fueling strong demand for our custom renovation department. Well-run construction services businesses are thriving.

  
  

In short, Battle Capital’s strategy is to bridge today’s affordability challenges while positioning for tomorrow’s scarcity-driven upside. Someone is always winning in real estate, and we aim to stay on the winning side.