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On June 18, 2025, the Federal Reserve announced that it would hold its benchmark interest rate steady at 4.25% to 4.50%, opting to maintain its current course in the face of elevated inflation and rising global trade tensions. While Fed officials continue to signal that two rate cuts may still be forthcoming before the end of the year, the decision to pause underscores their caution. For the housing market—particularly in regions such as Metro Phoenix and Scottsdale—the implications are substantial.
Inventory Dynamics: Builders Pull Back, Sellers Reassess
In recent months, the supply side of the housing market has undergone significant shifts. Housing starts increased slightly in May, but the more telling figure is the 2.7% decline in building permits. That drop points to a slowdown in future construction activity, a trend likely to accelerate as builders face elevated costs and uncertainty surrounding tariffs on imported materials.
Many developers are delaying new projects or scaling back existing ones, concerned about shrinking profit margins and waning buyer enthusiasm. As a result, the pace of new home inventory entering the Phoenix and Scottsdale markets may slow in the second half of the year, particularly once the current inventory is absorbed.
On the resale side, high borrowing costs continue to discourage buyers from entering the market. Many homeowners, locked into sub-4% mortgage rates, remain reluctant to sell, further limiting supply. Yet, the inventory that does come to market is lingering. Homes are taking longer to sell, and price reductions and seller concessions are becoming more common, especially in higher price brackets.
Mortgage Rates, Tariffs, and the Pricing Picture
Despite the Fed’s inaction on short-term rates, mortgage rates remain elevated. The average 30-year fixed mortgage hovers near 6.9%, driven by sticky inflation and volatility in the bond market. The spread between the federal funds rate and mortgage rates remains historically wide, placing pressure on affordability.
Compounding the issue are newly imposed tariffs on foreign goods and building materials. These have driven up input costs for builders and contributed to a more persistent outlook for inflation. Until inflation meaningfully recedes, the Fed is unlikely to cut rates aggressively—a delay that keeps mortgage rates high and monthly payments out of reach for many potential buyers.
This environment is pushing builders to discount aggressively. Many are offering rate buy-downs, closing cost incentives, and price reductions to move inventory. These discounts are also influencing pricing on existing homes, particularly in competitive submarkets where supply exceeds demand.
Short-Term Outlook: Stability with Downward Pressure
Over the next three to six months, inventory across Metro Phoenix and Scottsdale is expected to remain elevated, with more active listings than buyers. However, as building permits continue to decline, the pipeline of new supply may begin to tighten by the end of the year. Home prices are likely to remain steady or experience modest declines in markets where inventory outpaces demand, particularly in higher price brackets or areas with limited buyer activity.
Meanwhile, buyers are proceeding with caution, prioritizing affordability and showing sensitivity to mortgage rates. Looking further out over the next six to twelve months, a potential shift may occur. If the Federal Reserve delivers on anticipated rate cuts, we could see a gradual rebound in buyer activity and improved price stability, especially in more desirable or supply-constrained submarkets.
What Could Shift the Market?
Three key factors could change the housing equation in the back half of 2025:
- Federal Reserve Rate Cuts: If the Fed delivers on its forecasted cuts in Q3 or Q4, mortgage rates could ease, prompting a wave of renewed buyer interest.
- Tariff Relief or Trade Stabilization: Easing trade tensions would lower material costs, reduce inflationary pressure, and give the Fed more flexibility to lower rates sooner.
- Labor Market Changes: The Fed expects unemployment to rise to 4.5% by year-end. If job losses mount, demand may weaken further—unless offset by lower borrowing costs.
Strategic Considerations for Buyers, Sellers, and Builders
Sellers; should remain competitive on pricing. With buyers calculating affordability down to the dollar, overpricing leads to prolonged listing times and steeper concessions later.
Buyers; who can afford current rates have more room to negotiate and less competition—an advantage that may fade if rates fall and more buyers reenter the market.
Builders; should closely monitor absorption rates and continue offering targeted incentives to maintain steady traffic in slower submarkets.
Bottom Line
The Fed’s latest move confirms what many in the housing industry already suspected: until inflation recedes, interest rate relief will remain limited. For Metro Phoenix and Scottsdale, that means continued inventory buildup, price stability with downward pressure, and a market environment shaped more by patience than urgency.
Real estate remains local, and opportunities still exist for buyers seeking leverage, for sellers willing to price strategically, and for builders staying nimble in a shifting market.
