Jerome Powell and the Federal Open Market Committee (FOMC) have got a job to do—regardless of what the markets or consumers might want. Unfortunately for the property sector, Powell’s rates strategy has thrown a significant spanner in the works.

Consumers are hanging on to properties they purchased a couple of years ago at lower mortgage rates instead of purchasing a new pad at higher rates, a new report has revealed.

Global real estate consultants Knight Frank wrote in its Q4 2024 U.S. market report, published Thursday, that rate volatility paired with economic uncertainty has stalled market movement.

Of course, members of the FOMC could argue that—even if it was their prerogative to insulate certain markets—they only set short-term rates, while mortgages follow the long-term.

However, the latter tends to follow the former, meaning that before the pandemic, house buyers enjoyed an extended period of incredibly low mortgage rates.

Since early 2022—when the Fed first began hiking rates to wrestle rampant inflation back under control—mortgage rates have spiked in turn and now sit at around 6%, while in early 2021, they went as low as 2.6%.

The problem is squeezing buyers across the scale, but for those owing a hefty sum to the bank, a change in mortgage rates could be worth thousands of dollars a month.

Knight Frank writes that the unwinding of the yen carry trade, given base rate moves in the U.S. and Japan, sparked fears among buyers: “Investors were questioning whether the Federal Reserve had underestimated the fragility of the global economy and the risk of a domestic recession.”

Economists’ reactions and advice varied widely. Some called for emergency rate cuts, while others stuck with a 25 basis point (bps) reduction.

“This shift is the key to unlocking the housing market across the U.S.,” Knight Frank continued. “Right now, homeowners remain reluctant to part with mortgages agreed during an era of ultralow rates.

“National market data confirms that turnover in the first eight months of the year hit the lowest level in at least 30 years.”

The trend is particularly pronounced on the more costly end of the scale, the report continues: “Despite a higher prevalence of cash buyers, elevated borrowing costs have weighed on activity in luxury markets, too.

“Prime buyers tend to have wealth tied up in other asset classes, many of which have been hurt by higher rates. That adds uncertainty, which has been compounded by the November election.”

Citing data from real estate consultants Miller Samuel, the report adds that 29 properties sold for at least $50 million in 2023, which is down 41% from 2021.