09/21/2026
🏦 Fed Hikes Rates, Home Construction Cools
Week of September 14, 2026 Market Update
The Federal Reserve raised rates for the first time in three years, while new home construction slowed and homebuyers continued signing contracts despite higher mortgage rates.
Here are the key takeaways 👇
🏦 Fed Raises Rates 0.25%
As widely expected, the Fed unanimously increased its benchmark Federal Funds Rate by 25 basis points.
It was the first rate hike in three years and the Fed’s first rate change this year after five consecutive meetings on hold.
The reason? Inflation.
The Fed said “inflation remains elevated,” while Fed Chair Kevin Warsh emphasized that inflation has remained too high for too long.
Looking ahead, 16 of 18 Fed officials expect at least one additional quarter-point hike this year.
⚠️ One important distinction:
The Fed Funds Rate is NOT the same as mortgage rates.
The Fed Funds Rate is the overnight borrowing rate for banks. Mortgage rates are influenced primarily by the bond market and expectations surrounding inflation, economic growth and future Fed policy.
That means a 0.25% Fed hike does not automatically translate into a 0.25% increase in mortgage rates.
🏗️ New Home Construction Cools
Housing Starts fell 2.6% in August to an annual pace of 1.28 million homes, coming in below expectations.
Building Permits — an indicator of future construction — declined 2.7% to a 1.39 million annual pace.
Builder confidence also fell three points to 32. Any reading below 50 means more builders view market conditions as poor than good.
Higher mortgage rates, labor shortages and elevated construction costs continue to weigh on builders.
Here's the bigger housing story:
🏠 Household formations: ~1.4 million annually
🏗️ Housing Starts: ~1.28 million annually
Housing demand remains roughly in line with, or slightly above, the pace of new supply.
And new homes take time to build.
If mortgage rates eventually decline and sidelined buyers return, limited new construction could make housing supply increasingly important — and potentially continue supporting home values.
🏡 Pending Sales Actually Increased
Despite higher mortgage rates, Pending Home Sales edged 0.3% higher in August.
Sales remain 4.7% below last year, but buyers haven't disappeared.
NAR Chief Economist Lawrence Yun noted that buyers continued to “steadily” enter into contracts despite the challenging rate environment.
🛍️ Consumers Are Still Spending
Retail Sales jumped 1.2% in August, beating expectations, with 12 of 13 categories reporting gains.
Meanwhile:
👷 Initial Jobless Claims: 196,000
📋 Continuing Claims: 1.73 million
New layoffs remain relatively low, but elevated continuing claims suggest some unemployed workers are taking longer to find their next job.
🏡 Bottom Line
The Fed remains focused on bringing inflation back toward its 2% target, while the housing market continues to navigate higher borrowing costs.
But the supply story shouldn't be overlooked.
If mortgage rates eventually improve and buyer demand increases, limited housing inventory and slower construction could become an increasingly important factor for home prices.
📅 This Week: New Home Sales + Jobless Claims
