Headline Inflation's recent figure has made a September Fed rate cut seemingly inevitable, though price growth remains one percentage point above target, and producer price growth puts a little brake on this certainty. President Trump, in his campaign for easing monetary policy, has escalated his criticism of Fed Chair Jerome Powell, now accusing him of "destroying the housing market" and "hurting the housing industry very badly." Yet this blame overlooks deeper structural fractures that extend far beyond monetary policy’s reach.

Affordability Crisis Extended

Current mortgage rates between 6.5% and 6.75% for too long have left a severe affordability crisis, pushing monthly payments on median-priced homes to $2,570, a threshold requiring $126,700 in annual income to qualify. This has driven existing home sales to a 30-year low, with prices now stretching to five times median household income, far exceeding the sustainable 3:1 ratio. The Fed’s aggressive rate-hiking campaign, which lifted rates from near-zero to 4.25–4.5%, has effectively frozen the housing market, creating what economists term "upside-down economics", where conventional monetary tools risk backfiring.

Rate Cuts’ Limited Housing Relief

Even with political pressure, Fed rate cuts are unlikely to deliver the housing market rescue Trump and buyers expect. This disconnect stems from a critical nuance: while the Fed influences short-term interest rates, mortgage rates closely track long-term Treasury yields, which remain elevated due to federal deficits and heavy government borrowing. Compounding the issue, over 90% of existing homeowners locked in sub-6% mortgages during the low-rate era, creating a "golden handcuff" effect that strangles supply as owners refuse to trade favourable rates for today’s higher costs. With a housing supply deficit estimated at 3.8 million units, rate cuts could even worsen demand without addressing this fundamental shortage, rendering monetary policy ineffective as a standalone solution.

Structural Walls Beyond Monetary Control

The crisis is further rooted by forces outside the Fed’s oversight. Demographic shifts, including baby boomers delaying downsizing and reduced immigration, are shrinking the construction workforce, where one-third of labourers are foreign-born. Simultaneously, proposed tariffs on building materials threaten to inflate new home costs by $10,900 per unit. These structural challenges go against a reality Trump’s rhetoric ignores: no rate cut can resolve constraints rooted in labour dynamics, policy choices, and physical housing scarcity. However, a recently proposed capital gain exemption for home sales profit up to $500K may unlock some supply previously locked to avoid IRS penalty.

Lumber’s Tumbling

A telling signal develops in the lumber market, where prices have plummeted 12% since early August, a decline some interpret as a recession indicator in the construction sector, which supports the low to middle class. Futures prices fell from $678 to $581 per thousand board feet, while building permits sank to a 29-month low, exposing hidden weakness in construction borne from high home prices and lower demands. Lumber’s sensitivity to demand fluctuations makes it a reliable economic barometer, suggesting that affordability pressures are triggering demand destruction. This organic correction, not Fed intervention, may ultimately force housing prices downward, a process that could deliver affordability relief but at the cost of broader economic instability.

Housing’s Fragile Foundation

The stakes extend far beyond shelter. Housing directly fuels 15–18% of GDP through construction and its economic ripple effects. If lumber’s collapse foreshadows a wider downturn, the market’s self-correction via demand destruction could validate Powell’s stance that structural reforms, not rate cuts, are essential for sustainable recovery. Trump’s focus on Powell distracts from the urgent need for holistic solutions, leaving the housing market teetering between painful adjustment and prolonged crisis.