Interest Rates Shocks & Yields
The following article is going to explain why waiting for an event like lower interest rates to sell or buy is a bad idea.
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We have no control over the real estate market. Data availability is often working in lags, so we only have information after the fact, and it takes a month or 3 months if quarterly.
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For this reason every time people want to identify a trend it is quite unfruitful.
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Selling a house mainly occurs because the property has served its initial purpose, to establish shelter for a family and to be enjoyed. Often life changes that are natural such as children leaving the nest, divorce, unsatisfying space are the main drivers.
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Wrong Mindsets
One of the common objections that we come across is the issue of holding on to a property because the time is not right. We hear people say things like “I’ll sell my house when the market turns, if I can’t get what I want I won’t sell”.
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Yet they remain in the same uncomfortable place, holding negative cash flow, or breaking even on a bad rental property because in their mindset the market is not hot enough.
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The same goes for buyers, I do not know why some believe that we will see 4% interest rates, it’s been 3 years and they are averaging 6.8%. So keep waiting. The issue is not that you should rush to buy, the problem is that you are waiting because you have the wrong information.
Taking Right Action
I will say this, today is December 10, 2025. We have the highest inventory on record in the last 4 years, and I am currently building two custom homes.
I do not control interest rates, I cannot even predict with certainty if the interest rates will be lower.
What if I finish the properties and the bond market gets sold and yields rise and in response the spike seeps into the 30 year mortgage rates.
Here is what I do know, every year 150 homes sell in our market. Therefore, there is a market, it may not be the ideal market but there is liquidity, therefore if I say I will not invest until rates are back at 4%, either that will never happen or I will be 50 or 60 when that happens.
The Take Home Message
These are the points that we will focus and by the time you finish this article you will know more than the average person in regards to how interest rates work, how the cycle develops and where we are in the cycle as of December 2025.
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Who controls the interest rates
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What moves the interest rates
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How this creates cycles
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Where we are in the cycle
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Why 2025 is when the cycle is back to normalcy
Who Controls Interest Rates?
The mortgage rates are not directly controlled by the Federal Reserve, they act in response to the bond market. You can watch the news all you want every time Powell comes out and wrongly believe that if they make a 25 basis point cut the real estate market is going to rally.
Many investors are currently losing money this way, they see Powell making a cut and increase their property prices thinking we are somehow going back to the 2020 market. What they do not know, is that if the U.S. spooks foreign investors with issues from congress, economic aggression like tariffs these violent events also affect the bond yields.
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The reason why real estate is tricky is because to an extent the FED can control the bond market in the short term but not long term. But they cannot fully control it, that’s why the danger is that if they want to lower yields they need to be the bond buyer.
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Bond cycles are in a way THE real estate cycle, the problem is that they take years to pan out. Ever since the 2009 era we have been living under the quantitative easing regime. So, to stimulate the economy the interest rates were kept artificially low, you did not have to be a genius to make money in real estate flipping houses left and right during 2009 all the way to 2015.
Chart of the historical FED Fund Rate, 1955-2025, sourced from the FRED website.
Take a look at the historical chart of the FED fund rate. We are not looking at 30 year mortgage, rather the FED fund rate is simply the price banks pay to borrow money from each other overnight.
That price eventually affects every loan in the entire economy.
Why does the FED fund rate dictates affordability?
When the Fed Funds Rate goes up, borrowing gets more expensive, fewer buyers can afford homes, demand drops, and real-estate becomes less liquid; when the rate goes down, cheaper borrowing increases demand, and real-estate becomes more liquid.
How can we interpret what happened and what is going to happen from the FED fund rate?
Mandates
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During the 80's major economic issues with inflation forced the FED to increase interest rates to cool inflation. This had nothing to do with the FED affecting the housing market. The housing market was simply caught up in this economic turmoil. The same things happens to assets such as gold, silver and stocks.
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What happens when the mortgage rates raise as much as 15%, well is quite simple, less people can afford the house so the pool of buyers is limited. However, remember, the role of real estate is to provide shelter. A growing number of families who need the house is what keeps the market alive. Is not the best market but there is a market.
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Being born in the 90's I had no physical embodiment in this dimension to recall what the market was like in the 80's. From speaking to retired investors, they recall sellers having to pay for the buyer's down payment at times because the cost of the loans was too high. That is normal.
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After the 80's by enduring the pain of high interest rates, the U.S. economy grew, recovered and the rates went down steadily well into the 90's. Housing had a good 10 year run.
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You see how the cycles last for decades, so if you need to sell you house, you could be inside a 10 year cycle, so is pointless to think that you can wait when you have an actual need to trade such as downsizing to a smaller home, or going for a bigger house because you now have more children.
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Is not about waiting for something drastic to happen in the market, is about navigating the current market and identifying the risks, so we can start by saying ok so you have a situation that merits that the house must be sold.
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And somehow you want a price, we can estimate a probability. But, based off that we can identify if is feasible to list that house at X.
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Because we have a regional trend, and within that trend you also have pockets or micro markets that may be outperforming the region.
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That could be reflected in how they behave in absorption rates, and whether they are closing consistently above the mean $/SqFt.
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This is what sets us apart as an agency, we do have the tools to provide a superior service and we would rather tell a seller that something is not going to happen, rather than lie, cause disappointment and then ruin the listing with fingerprints like in the other article.
Where Are We Now?
10 Year U.S. Bond Weekly Chart, Sourced from Yahoo Finance
In 2020 many buyers believed that the market would crash, and refused to buy saying prices have to come down we are in recession. All they did was buy at a higher price.
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Real Estate appreciates rapidly during recessions because that's when the government intervention kicks in and interest rates get lowered fueling consumption.
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Take a look at the chart above where I show the 10 year bond yield. The 10 year bond yield is often correlated with the mortgage rates.
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Look at 2019 the first indication that the market would overheat was in mid 2019. This effect lasted through 2021.
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Home inventory was at all time lows because of COVID fears.
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Interest rates were also lower than their 2017 highs.
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This was the perfect storm for prices to shoot up.
2022-2024 Correction
Buyers refusing to buy in 2020 were wrong about prices, if you look closely at the chart and I will place it below again. The signal that the market was about to turn came in early 2021.
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It took one year for the market sluggishness to be felt.
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3 years later, we are in 2025 and people are now surprised at the news outlets spreading fear tactics that homes are now sitting on the market and that prices will come down.
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In 2022,2023 and mid 2024, homes available for sale began to increase because the fear of COVID was going away. Interest rates began to increase. This effect turned off buyers who were used to see 4% interest rates.
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Moreover, we also had people who worked remotely who had to go back so more homes came on the market.
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10 Year U.S. Bond Weekly Chart, Sourced from Yahoo Finance