Founder's Note
Last week I told you the hike scare had faded. Wednesday's minutes said otherwise. The record of the July meeting showed the Fed holding its target range at 3.50% to 3.75%, but with three officials, Beth Hammack, Neel Kashkari and Lorie Logan, voting to raise instead. That is not a committee quietly winding down. And yet the mortgage market went the other way again, with the 30-year average slipping to 6.65%, its second straight weekly decline.
Both of those are true at once, which is the part worth sitting with. Futures put the odds of a September hike at roughly one in three, so traders are siding with the doves. But crude closed Friday near $87 after a second weekly gain, with the Strait of Hormuz still running well below normal volume, and energy is precisely what turns a 3.4% inflation print back around. Kevin Warsh gives his first Jackson Hole address as Chair on Friday, August 28. I have no idea what he will say, and neither does anyone selling you a view on it.
So I stopped guessing. The number that actually moved my thinking last week did not come from the Fed at all. It came from CBRE, whose second-quarter figures show apartment absorption nearly doubling while new deliveries fell 14%. That is a supply and demand story you can see three years out, and it needs nothing from Washington. More below.
This Week in Markets
1. The July minutes showed three votes to hike, not a committee ready to stop
The record of the July 28 to 29 meeting, released Wednesday, showed the Fed holding at 3.50% to 3.75% while three officials voted to raise. Participants pointed to tariffs, Middle East energy costs and AI-driven demand as reasons inflation has stayed above the 2% goal. Unemployment was 4.2% in June and has barely moved in two years. Futures now put a September increase at roughly one in three, with the decision landing September 16.
Why it matters: A three-way dissent is not a committee winding down. Underwrite floating-rate debt as though the next move could still be upward, because three of the people who actually vote already think it should be.
2. Mortgage rates ease a second week while oil quietly climbs back
Freddie Mac put the 30-year average at 6.65% for the week ending August 20, down from 6.67% and the second consecutive decline. A year ago it averaged 6.58%, so the whole round trip has been about seven basis points. The 15-year eased to 5.95%. The 10-year Treasury held near 4.69% into Friday. Underneath that, crude settled around $87 after a second straight weekly gain, with roughly 8 million barrels a day still displaced by the Hormuz conflict against about 20 million moving through before the war.
Why it matters: Two basis points is not a trend, and energy is the one input that can undo it. Keep underwriting mid-6% financing. A cheaper rate later is upside you did not have to pay for.
3. Apartment demand outran new supply by more than two to one last quarter
CBRE's second-quarter figures show net absorption of 167,500 apartments, nearly double the 84,300 taken down in the first quarter, against just 77,700 units delivered, a 14% drop from a year earlier. National vacancy fell 50 basis points to 4.3%, below its long-run average near 5%. Average asking rent reached $2,257, up 1.5% on the quarter. CBRE's Kelli Carhart described the supply wave as cresting, with construction expected to slow further.
Why it matters: This is the cleanest signal in the market right now. Renters are absorbing more than twice what developers are delivering, and the pipeline behind it is thinning. That gap is where rent growth comes from.
The Take
Friday morning, Kevin Warsh walks to a podium at Jackson Lake Lodge for his first Jackson Hole address as Fed Chair, and a great many people will spend this week guessing at what he says. I understand the impulse. The September meeting is three weeks out, three officials already voted to hike in July, and the gap between a pause and a resumption is real money to anyone carrying floating debt. But I have watched this movie enough times to know how it ends. Nobody guesses right twice in a row.
Here is what I keep coming back to. While the market argues over a quarter of a point, a much larger number went out with almost no comment. CBRE published its second-quarter apartment figures, and they describe a market turning in a way that has nothing to do with monetary policy at all.
One. Demand nearly doubled in a quarter. Renters absorbed 167,500 apartments in the second quarter, up from 84,300 in the first. That is not a survey or a forecast, it is signed leases. Rental demand did not soften while rates sat high. It accelerated.
Two. Supply is going the other way. Developers delivered 77,700 units in the quarter, down 14% from a year ago, and CBRE expects construction to slow further. Absorption beat deliveries by better than two to one. Vacancy fell 50 basis points to 4.3%, under its long-run average.
Three. None of it waits on the Fed. An apartment building takes two to three years to go from financing to lease-up. Whatever competes with you in 2029 has either broken ground or it has not. That pipeline is already set, and it is thin.
Set those against the rate question and the contrast is stark. The rate call resets every six weeks, and the honest answer is that nobody knows, including the people who vote on it. The supply question was settled two years ago by construction lenders who stopped returning phone calls. One of those is a forecast. The other is closer to an inventory count. Given the choice, I would rather build a position on what is already in the ground than on a sentence Warsh has not written yet. Being wrong about the Fed costs you a few points of financing. Being wrong about supply costs you the whole thesis.
There is a real irony buried in this. The same high rates that make buyers nervous are what emptied the development pipeline to begin with. Construction financing at these levels does not pencil, so starts collapsed, so the 2028 and 2029 deliveries quietly vanished from the schedule. The tight money everyone complains about is manufacturing the shortage that will price apartments three years from now. If rates come down, existing owners get a valuation lift on top of that. If they do not, the shortage shows up anyway.
So I will not pretend to know what happens Friday, and I would be wary of anyone who does. But the case for well-located rental housing does not run through that speech. It runs through 167,500 signed leases, 77,700 units delivered, and a pipeline that gets thinner from here. Target returns are still targets, and any individual deal can still go wrong. What is not really in question anymore is the demand. The Fed decides what your debt costs. It does not decide whether anyone needs the apartment.