Housing’s Key Role in the Economy

Housing remains one of the most significant drivers of the U.S. economy, representing roughly 18% of GDP and more than one-third of consumer spending. Because of this outsized impact, it also serves as a critical indicator of economic activity and future trends. Recent Federal Reserve rate cuts have prompted questions about whether housing affordability may improve. Signs of a potential turning point are already emerging: new U.S. home sales have spiked while new home prices have trended lower. Lower prices and lower rates are stimulating activity, a positive development for both the housing market and the broader economy. Monitoring this trend throughout the rest of 2025 will be essential.

Government Shutdown and Rate Cuts

While the housing data is encouraging, potential headwinds remain. Congressional leaders are working to avoid a government shutdown, and although history shows such events have little lasting impact on GDP or markets, they can disrupt the flow of government-produced economic data. This disruption matters because the Federal Reserve has become highly data-dependent. For instance, a key jobs report scheduled for release may be delayed if a shutdown occurs. Without timely data, the Fed’s ability to gauge the economy, and determine whether further rate cuts are needed, becomes more difficult. Recent rate moves illustrate this uncertainty. Leading up to the Fed’s latest meeting, both 10-year Treasury yields and 30-year mortgage rates were falling. After the rate cut, they flattened and even edged higher. While not as dramatic as last year’s spike, the lack of continued downward movement raises questions about the trajectory of borrowing costs, and by extension, housing affordability and federal debt refinancing.

The Strength of the U.S. Consumer

Despite policy uncertainty, the American consumer continues to show resilience. The latest personal income and consumption report revealed that personal income rose 0.4% in August while spending climbed 0.6%, both exceeding expectations and building on strong June and July data. On a year-over-year basis, personal income is up over 5% and spending more than 5.5%, outpacing inflation running near 2.7%. This strength in household income and spending, which together account for about 70% of the U.S. economy, underscores a confident consumer base fueling growth. This momentum is especially important heading into the final quarter of 2025, when holiday shopping often sets the tone for broader economic activity. Maintaining consumer confidence will be key to sustaining expansion.

Greg Powell, CIMA®

President and CEO

Wealth Consultant

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Bobby Norman, CFP®, AIF®, CEPA®

Managing Director

Wealth Consultant

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Trey Booth, CFA®, AIF®

Chief Investment Officer

Wealth Consultant

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Ty Miller, AIF®

Vice President

Wealth Consultant

Email Ty Miller here

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