The Fed Rate Cut Cycle is about to begin (home price prediction for 2025-26)

The Federal Reserve is on the cusp of cutting interest rates and these interest rate cuts could have a big impact on the economy and housing market. In this video I'm going to give you my projections for where interest rates are heading over the next year and what this is going to do to home values. So the current short-term Fed funds rate is around 4.3% heading into July 2025 and this orange line reflects its projected path over the next year with market predictions suggesting that the Fed might cut interest rates by over 100 basis points over the next year. Now the reason the Fed is forecast to do this is because inflation has slowed to 2.4% while the U.S. labor market is beginning to show some signs of stress with the recent ADP payrolls report showing 33,000 job losses in June 2025. And so because of that the Fed is now going to be more focused on preventing job losses in the economy which is likely to mean interest rate cuts. Now according to the CME Fed watch tool the Fed is expected to keep interest rates at 4.25 to 4.5% in their next meeting in July. However these rate cuts are then expected to start in September and then continue in each subsequent month with three rate cuts expected by the end of December 2025 and four to five cuts expected by June 2026. Now there is one thing worth talking about here folks and that's who the Fed chair is even going to be a year from now because a year from now Jerome Powell's term runs out. Jerome Powell is the current chair of the Federal Reserve. He has been since 2018. He will not be after 2026 because it seems like Donald Trump wants to replace him. And according to Reuters Trump came out and recently said that he wants interest rates cut to one percent and would love if Powell resigned. With CNN reporting that Trump has actually recently sent a handwritten letter to Powell demanding ultra low interest rates and this is actually a picture of the letter everyone. It's pretty interesting. It has different countries around the world with independent central banks and it shows what their current policy rates are compared to America. So America's current short-term policy rate is 4.5%. You can see that's on the higher end at least of the countries on this list. You can see Canada is actually at 2.75%. Trump I guess is saying that we should be in the zero to two percent range on interest rates. Now the prediction markets don't think that we'll actually see zero to two percent interest rates. As I said in the beginning they think it's more likely that we see a three percent interest rate in a year which would be four or five rate cuts. And the question is if we see four or five rate cuts what is that going to do to the economy and housing market? Is that something that's actually going to end up re-stimulating demand in the economy and housing market? Well I'm going to attack those questions one by one because you guys out there as homebuyers, investors, sellers, or people who just want to understand the market, it's very important that you understand what's going to happen with these interest rates because there's a lot of misinformation out there. I see a lot of people already getting out there on YouTube and Instagram trying to say that rate cuts are going to bring massive demand back to the market. They say rate cuts are going to cause the biggest bubble of all time. But is that really true everyone? Because let's not forget the Fed already started cutting rates about nine months ago. We had interest rates at 5.3 percent in August 2024 and then the Fed cut them a full 100 basis points to 4.3 percent. Let's not forget this. So interest rates have already been cut by a hundred basis points. We should ask ourselves the question what did that interest rate cut at the end of 2024 do for the housing market? What did it do for the economy? And the answer is not a whole lot. Mortgage rates actually ended up going up after those interest rate cuts and there's been no meaningful bounce back in homebuyer demand whatsoever. Because you can see existing home sales in the U.S. according to the National Association of Realtors are still down about 25 percent from their pandemic peak. So in May 2025 existing home sales annualized to 4 million on the month. The pre-pandemic level was 5.4 million. So we're still down 25 percent on homebuyer demand and you could see we had that rate cut those rate cuts and there was really no increase in demand. And in fact mortgage applications to buy a house according to the Mortgage Bankers Association registered an index of 165 in the first week of While that was up 15 percent year over year it was down about 38 percent from the same week in 2019. So mortgage applications to buy a house are still down 39 percent from where they were pre-pandemic. So the first round of rate cuts did nothing to stimulate buyer demand. And so if that's the case why would another round of rate cuts do anything to stimulate buyer demand? Because in the last months it's not like we've seen a massive improvement in home price affordability. It's not like we've seen the economy get better. The new payroll report from ADP just showed that the economy contracted 33,000 jobs on private payrolls in June and data from Indeed is showing the job openings are going down. And so if anything the labor market seems in a slightly weaker position today than it was nine months ago. So I think rate cuts if anything folks might be a reaction to a slowdown in the housing market and economy. It could be the sign that things get worse into the future. When the Fed cuts rates that's typically the sign that things are about to get worse in the future. As you can see here on this graph from the Federal Reserve Bank of St. Louis the peaks in interest rates almost always come right before these gray shaded bars which are recessions. Now I know a lot of people are bored of the idea that a recession is coming. They don't think it's going to happen. You know they heard about it two or three years ago. The recession didn't happen so a lot of people think oh that's just not going to happen anymore. It's not possible is what a lot of people are saying. But I would say folks consider the historical record and consider the fact that we had a huge increase in interest rates over a two or three year period and now those rates are starting to come down as the economy slows and we're seeing visible signs of weakness in the housing market. To me that adds up to a situation where you need to be cautious with these rate cuts as a potential homebuyer investor. Do not believe that just because the Fed is cutting rates that we will see home prices go up and buyer demand come back. And one of the reasons I feel kind of confident in being skeptical of that is I'm looking at the data on how much it costs to buy a house right now in America and it's just at a level that isn't affordable for American people. When you take a look at how much the average American makes and that's around $83,000 $84,000 for a household is what the median income is $84,000. And you compare that to how much it costs to buy a house today you can clearly see that the affordability is so poor that buyers are not going to be in a rush to come back to the market even if the Fed cuts rates a couple times. And where we're really seeing this everyone is on this graph and I want you all to really pay attention to this graph because it's showing you just what's going on in the market today and why buyer demand is so low. And the reason it's low in the housing market and why so many realtors and mortgage brokers and investors are pushing for the Fed to cut rates is because right now it costs the median household in America 39.7% of their gross income to afford the mortgage tax and insurance. And this mortgage to income ratio it's at close to the highest level we've seen in the last three to four decades. And so in the previous peak in the bubble in 2006 it got to 39% that was a sign of a bubble it then went down to 22%. In the early 90s it was around 38% and then it went down to 25%. What the historical record says is that this lack of affordability in the housing market is not sustainable. It's not sustainable whatsoever. We've never seen it be sustained over an extended period. So I think likely this mortgage payment to income ratio is going to come down in the future. And there's three ways it can come down. It can come down through lower mortgage rates. It can also come down through lower home prices and it can come down through higher incomes. And so it's the combination of those things which will bring more affordability back into the market and bring demand back into the market. But the mistake so many people in real estate continue to make, and I just see this everywhere on social media, is they just keep talking about mortgage rates as if mortgage rates is what's going to save the day. And I ran the data everyone and it's very apparent that mortgage rates are not going to do much in terms of re-stimulating demand and rather we're going to have to see prices drop in order to bring affordability back in in order for the buyer demand to go back up. You can see that very clearly on this matrix I created everyone and this is the mortgage to income ratio matrix sensitized to how home values could change in the future. And so right now home values are at their baseline in June 2025 and mortgage rates are 6.8%. We have a 39.8% mortgage to income ratio. Now our target I would say is getting to that ratio to 30%. This 30% represents the long-term average. You can see here on this graph so on average over the last 35 years Americans who are buying a house have had to spend 30% of their gross income to buy that house. And I think what this chart shows everyone is that you know simply relying on these incremental mortgage rate reductions is not going to do much. Mortgage rates could go down to 5.3% and if prices don't drop it's still a 35% payment ratio for home buyers. It's still a level that just isn't workable. So we need to see values go down and go down significantly to actually bring affordability back into the market and to bring buyer demand back into the market. And so in some ways I think even talking about these Fed rate cuts is kind of a waste of time. And I know for a lot of people who work in real estate that's going to sound crazy because everyone who works in real estate has been trained to think that just the Fed controls everything and that rate cuts are amazing and that you know the direction of mortgage rates is what buyers care about. But that's not the case anymore in 2025 everyone. Home prices are vastly overvalued and buyers are at their most pessimistic they've ever been. And so whether the Fed cuts 50 basis points or 75 basis points by the end of the year or 125 basis points over the next 12 months and you know maybe Trump installs you know a Fed chair like Kevin Warsh or Kevin Hassett or maybe Scott Besent who's more aggressive on rate cuts. I just don't think it's going to matter a whole lot because the reality of the market is the prices are too high and that's why buyers are on the sidelines. And I actually asked you guys some interesting questions regarding this video which you've answered to in my polling section on my channel. And one of the first questions I asked you all was if the Fed cuts rates will it result in more home buyer demand. Now 13,000 of you voted in this poll. Big sample size. 41% of you said yes it would result in more demand. 59% said no. So about three fifths of you are kind of agreeing with me that you know you don't really think rate cuts are going to matter a whole lot but 40% of you do seem to think rate cuts are going to matter in improving buyer demand. So we'll have to track that going forward. First rate cut is probably going to come in September. If the Fed gets a bit aggressive it might come in July but so far people think September is going to be the first rate cut. So we'll have to see there. Additionally I asked you all the question what's the absolute max you would be willing to pay for your monthly mortgage tax and insurance payment to own a home. And this was also really interesting. 26% of you said the max is $1,500 a month. 27% of you said the max is $2,000 a month. 24% of you said the max is $2,500. 23% of you said the max is $3,000 or higher. So what I think this also shows everyone is how far off we are on this housing market right now. Because right now the U.S. typical mortgage payment inclusive of taxes and insurance is $2,800. And so about three quarters of you are not willing to pay $2,800. So for most of you watching this video, you're saying to yourself, I'm not even close. And you guys can let me know what you think if you're even close to buying a house in this market. I just think this is such important information for our leaders to hear right now, especially our leaders in the housing market. Scott Turner, the head of the FHA, Bill Pulte, the head of Fannie Mae and Freddie Mac. A lot of people are thinking about how can we rejuvenate the housing market? How can we get more home buyers back into the market? And it's simple. It's really simple. And it's maybe an answer that people don't like. It's that prices need to come down. We're not going to get more buyers back into the market by pushing Powell to cut interest rates. We're not going to get more buyers back in the market by all of a sudden allowing crypto holdings to qualify for assets on mortgages. That is not going to sustainably improve the housing market. Rather, prices need to drop. And from a policy perspective, our government should be thinking about how they can facilitate home prices dropping. This home prices dropping is the best thing that can happen to this country economy and society right now. Home prices dropping. It will make buying a house more affordable and will cause more people to buy homes and increase buyer demand. That would be great for the economy on its own, housing market on its own. But then also think about inflation, right? Inflation is down to 2.4% year over year. There's some people who are concerned inflation is going to make a comeback. The one way you can be sure inflation is not going to make a comeback is if home values drop. A declining home value environment is going to facilitate a disinflationary environment across the economy. And so I think the current Trump administration and on the leaders in that administration, who I think have done a good job so far overall, need to really focus on this. How can we make home prices cheaper? So I want to you this listing, everyone. This is an example of what can happen when home prices go down. This is a house that just sold about a week ago for $289,000. It's a three bed, two bath, 2,000 square foot house in Port Charlotte, Florida. Now take a look at its history. The previous owner purchased it in July, 2022 for $394,000. And because there was deflation in this local housing market in Charlotte County in Florida, because there was a lot of inventory, they ended up having to cut the price down to $289,000 before it sold. So they literally cut the price $100,000 on this house from what they bought it for. And you could see its current sale price of $289,000. That's pretty close to what the sale price was in 2005. And so, you know, if you want to get transactions going and you want to get homes sold on the market, drop the price. Of course, everyone, the market dynamics themselves are going to inform where values are heading in the future. And we have a lot of overvalued housing markets in America right now, where they boomed during the pandemic. Lots of people moved in. The prices went up as much as 50 or 60 percent in some cases over the span of just four or five years. And now they're starting to drop in some markets. Actually, in over 30 states, home values declined in May, 2025, according to Zillow's Home Value Index on a month over month basis. And now we have about seven to eight states where values are dropping year over year. And there'll be even more states where values enter year over year correction in future months. You can see the states that are already in year over year correction territory include Colorado, Arizona, Texas, Louisiana, Georgia, Florida, North Carolina, and interestingly, Vermont and Hawaii. So we actually have 10 states, including D.C., where values are down year over year, which means they're down from May 2024 to May 2025. But as I said earlier, we have 32 states plus D.C. where values are dropping on a month over month basis in seasonally adjusted terms. And we here at ReVenture, we feel like these declines are going to continue into the future, given the trajectory of inventory and price cuts on the market. I would really recommend you check out our home price forecast. You can see our forward looking forecast for all the different states right here. Florida has one of our lowest forecasts, minus 6.2% is where we think values are heading in Florida over the next year. We think values in Colorado are going to go down 6%. We think values in Utah and Arizona are going to go down 5% and Texas are going to go down 5%. And we now have downward forecasts in about 20 to 25 different states. However, we still have the Northeast and the Midwest looking stable or going up. So really important that you understand what's going on in your market down to your zip code. We have some markets here in Tampa and St. Pete where I live, where we project prices to go down over 10% in the next year. There's other areas where we think prices are only going to drop 3%. And so if you're a potential buyer or investor trying to get a deal right now, you've got to know these forecasts and how much values are projected to drop in your area. If they're projected to drop 10%, I mean, folks, you better be making offers reflecting that. And you should be bringing this data to the seller and the realtor saying, hey, here's an objective source saying values are forecast to drop. I'm going to need a better deal on this transaction. And we have this forecast available for nearly 30,000 zip codes in the U.S. And this forecast has actually performed really well in recent years in predicting price growth at the metro level. Our forecast has an over 70% correlation coefficient year to year in predicting prices. So to save money on your home purchase and to understand where the market's heading in the future, go to www.reventure.app and sign up for a premium plan at a cost of $39 a month so you can access that forecast for your zip code and take the power of housing market data into your own hands and make a more informed decision this year.