Builder Advisor Group has been closely monitoring the financial markets and spending considerable time with investors focused on the U.S. housing sector.
Executive Summary:
· We anticipate reductions to the Federal Funds target rate in late 2025 and the first half of 2026 that will bring the
target rate to approximately 3.25%
· We believe the yield curve will steepen and anticipate the spread between 30-year mortgage rates and 10-year
Treasury yields to compress to the 175-200 bps range. This suggests a 30-year mortgage rate near 6% by mid-2026.
· Lower mortgage rates will help alleviate the current affordability challenges for home buyers. We expect builder
order pace to gradually strengthen.
· We believe builder and developer mergers and acquisitions will continue to be active
· We believe housing will remain one of the more resilient and attractive areas within U.S. real estate
September 2025 Market Update
Based on current conditions, we anticipate that the Federal Reserve will reduce the Fed Funds target rate by 25 basis points in September and again in December, followed by two additional 25 bps cuts in the first half of 2026. This would bring the target rate to approximately 3.25%.
While inflation remains modestly above target, employment data has been mixed, and ongoing stress in commercial real estate reduces the need for a tightening bias. At the same time, the Fed continues quantitative tightening, allowing roughly $100 billion in Treasuries to roll off its balance sheet each month.
We expect the yield curve to steepen, reflecting the significant refinancing needs ahead—about one-third of all outstanding U.S. Treasuries will refinance this year, and nearly 80% (over $20 trillion) will refinance within the next five years. In this environment, longer-term rates are unlikely to fall as quickly as short-term rates. Encouragingly, we anticipate the spread between 30-year mortgage rates and 10-year Treasury yields to compress back into the 175–200 bps range, which, together with Fed easing, suggests a 30-year mortgage rate near 6% by mid-2026.
For housing, we believe the implications are positive. The U.S. does not face an oversupply issue but rather an affordability challenge—one that lower mortgage rates should help alleviate. We expect builder order pace to gradually strengthen. Builder and developer mergers and acquisitions are expected to remain active, supported by strong balance sheets at large public and private builders, which currently carry relatively low leverage compared to historical norms. International capital also continues to show meaningful interest in the U.S. housing sector.
Against this backdrop, we believe housing will remain one of the more resilient and attractive areas within U.S. real estate over the coming years.
About Builder Advisor Group
Builder Advisor Group has been an established leader in investment banking for U.S. homebuilders and developers since 1996. The firm has executed more than $30 billion of M&A transactions and helped raise over $20 billion in capital for private and public homebuilders and developers. Since 2021, Builder Advisor Group has advised on more than one-third of all US homebuilder and developer mergers and acquisitions.[1] The firm's long-standing relationships with homebuilders and direct experience in developing and building homes enable them to tailor and execute strategies for clients that others may not see.
[1] This information is based on internal analysis conducted using a combination of BAG's company records, publicly available sources (including SEC filings and press releases), and third-party databases. The data reflects a best-efforts review and includes reasonable judgment in identifying relevant transactions; as such, it may not capture all M&A activity in the U.S. homebuilding industry and should not be considered exhaustive.
