Higher Rates Meet a Changing Housing Market

Market Snapshot

Market	Sept. Close	Sept. Return	YTD
S&P 500	7,651.54	-0.45%	11.77%
NASDAQ Composite	26,861.06	+1.86%	15.57%
Dow Jones Industrial Average	50,906.05	-4.29%	5.91%
Russell 2000	2,796.86	-5.40%	12.69%
Gold	$4,186.70	-6.58%	-3.56%
Silver	$60.57	-9.59%	-14.22%
Copper	$6.63/lb.	-0.87%	16.39%
2-Year Treasury	4.88%
10-Year Treasury	5.29%
30-Year Fixed Mortgage	7.03%

Market in One Minute

September brought an increase in interest rates as the Federal Reserve raised its benchmark federal funds target range by 0.25 percentage point to 3.75%–4.00%. The 10-Year Treasury ended September at 5.29%, while the average 30-year fixed mortgage rate reached 7.03%, adding further pressure to borrowing and housing affordability.

Stock-market performance was divided. The technology-heavy NASDAQ gained 1.86%, while the S&P 500 declined 0.45%, the Dow fell 4.29%, and the Russell 2000 dropped 5.40%. Precious metals also declined sharply during the month.

Housing showed additional signs of slowing as price reductions became more common and inventory increased. At the same time, second-quarter GDP was revised higher to 2.2%, showing that the broader economy continued to grow even as higher borrowing costs created increasing pressure in other areas.

What Happened This Month

Geopolitical

The conflict with Iran and continuing disruption around the Strait of Hormuz created additional market volatility through September. Crude oil rose sharply during the period before retreating from its highs. The Strait of Hormuz remains one of the world's most important energy transportation routes, making disruptions in the region economically significant.

Energy disruptions matter beyond the price of oil itself. Higher energy costs can affect gasoline prices, transportation and manufacturing costs, eventually reaching both consumers and businesses.

Trade negotiations between the United States and China also continued during September. Tariffs and trade remained points of tension, while access to critical minerals and rare earths continued to be an important source of economic leverage. These materials are increasingly important to technology, advanced manufacturing, energy and national security, making the U.S.-China relationship an economic issue as much as a geopolitical one.

Stock Market Performance

September produced mixed results across the major stock indexes, but even with the volatility during the month, the NASDAQ remained approximately 15.57% higher for the year. Technology stocks continued to benefit from investment surrounding artificial intelligence, while small-cap stocks and other areas of the market faced greater pressure as interest rates moved higher.

One factor continuing to support stocks has been strong corporate earnings. Second-quarter earnings growth remained exceptionally strong, providing an important foundation for stock prices even as investors faced higher interest rates and geopolitical uncertainty.

September also reinforced an important investing principle: short-term economic conditions do not affect every company or investment in the same way. Higher interest rates may create challenges for some areas of the economy; however, technological innovation, capital investment and earnings growth can create opportunities in others.

For investors, periods like September reinforce the importance of understanding what you own and making investment decisions based on your financial goals rather than assuming that a rising or falling market tells the whole story.

Economy & Interest Rates

Economic growth remained stronger than many expected heading into September. The final estimate of second-quarter GDP was revised substantially higher, from 1.5% to 2.2%, providing further evidence that the broader economy continued to expand despite elevated interest rates.

The Federal Reserve raised its benchmark federal funds target range by 0.25 percentage point to 3.75%–4.00% in September. Longer-term interest rates also moved higher, with the 2-Year Treasury ending the month at 4.88% and the 10-Year Treasury at 5.29%. The average 30-year fixed mortgage rate reached 7.03% in the final September reading, compared with 6.66% at the end of August.

The speed of the increase is also important. Interest rates have not simply moved higher; they have moved higher relatively quickly. Rapid changes in bond yields can create volatility and affect stock valuations and financial markets almost immediately, while the effects on mortgage payments, business financing, investment decisions and the broader economy can take longer to develop.

Housing & Real Estate

Higher mortgage rates are beginning to have a more visible effect on the housing market. During September, 20.8% of active listings experienced a price reduction, the highest September percentage since 2018. Active inventory increased 5.4% from a year earlier to more than 1.16 million homes, while the number of homes under contract declined 4.1% from a year ago.

The national median listing price also declined 1.4% from a year earlier. Housing conditions vary significantly by location, and these numbers do not mean home values are declining everywhere. They do, however, suggest that the balance between buyers and sellers is continuing to change.

For buyers, higher mortgage rates remain a significant affordability challenge. Realtor.com estimated that the increase in mortgage rates from 6.66% to 7.03% reduced purchasing power by approximately $11,500 for a buyer maintaining the same monthly housing budget. For sellers, increased inventory and more frequent price reductions may mean pricing a home realistically is becoming increasingly important. Housing is local, but nationally September provided additional evidence that higher borrowing costs are changing the market.

Commodities

Precious metals moved sharply lower during September.

Gold declined 6.58% to $4,186.70, while silver fell 9.59% to $60.57. Copper declined more modestly, falling 0.87% to $6.63 per pound, while remaining substantially higher for the year.

Higher interest rates and rising Treasury yields can create competition for assets such as gold and silver because investors can earn higher yields from fixed-income investments. At the same time, geopolitical uncertainty and inflation concerns remain potential sources of demand for precious metals, helping explain why these markets can sometimes move sharply in either direction.

ST&R Analysis

The Shasha Perspective

September presented an unusual combination of economic signals.

Economic growth was revised higher, investment surrounding artificial intelligence and technology remained strong, corporate earnings remained strong, and the NASDAQ continued to advance. At the same time, the Federal Reserve raised its benchmark interest rate, Treasury yields moved higher, mortgage rates crossed 7%, housing showed additional signs of slowing, and the initial September employment report showed slower job growth.

The source of inflation also remains important. The conflict with Iran and disruption surrounding the Strait of Hormuz have contributed to higher energy costs. Higher interest rates can reduce borrowing and spending throughout the economy, but they cannot produce additional oil, reopen shipping routes or resolve geopolitical conflicts.

That distinction matters because monetary policy does not affect the economy immediately. Changes in interest rates work their way through borrowing, business investment, housing and consumer spending over time. The full economic effect of previous rate increases may therefore still be developing even as additional increases are being made.

From our perspective, this argues for patience. The economy has continued to grow, but there are now clearer signs that higher borrowing costs are affecting interest-rate-sensitive areas such as housing. We believe the Federal Reserve should allow time to evaluate the cumulative effects of higher rates before assuming that additional increases are necessary.

For investors, September also demonstrated why financial decisions should not be made from a single headline or economic statistic. Technology stocks rose while other areas of the market declined. Economic growth and corporate earnings remained strong while the initial employment report showed slower job growth. Housing softened while business investment remained strong.

At Shasha Tax & Retirement, we believe periods like this reinforce the importance of diversification and having a solid, written financial plan. Investment decisions, taxes, borrowing, cash flow and retirement planning are connected. Understanding how those decisions work together can be more valuable than trying to predict what the Federal Reserve or financial markets will do next.

Have Questions About What This Means for You?

Market volatility can also create opportunities for long-term investors.

The important question is not simply, “What will the market do next?”

It is whether your financial decisions are working together toward the goals that matter to you.

✓ If you're wondering how today's markets, interest rates, taxes or changing economic conditions could affect your financial future, let's talk. We can help you identify what may matter most for you.

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Shasha Tax & Retirement

Helping You Make Better Financial Decisions—Today and for the Future.

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