Location Strategy Chartbook 12.13.25

The Fed delivered on an interest-rate cut. The Federal Reserve announced, as expected, that it would cut its interest-rate target by a quarter point, to a range of 3.5% to 3.75%. The Fed also said it would resume expansion of its balance sheet by buying short-term Treasury securities, aiming to head off pressure in overnight lending markets

But it was uncertain about future cuts. In its statement, and at the press conference of Chair Jerome Powell, the Federal Reserve appeared to set a high bar for the next cut. “We’re well positioned to wait and see how the economy evolves," Powell said.

Applications for unemployment benefits rose last week as out-of-work Americans put Thanksgiving behind them. It was the biggest rise since the onset of the pandemic as initial claims increased by 44,000 to 236,000 in the week ended Dec. 6. The figure exceeded all but one estimate in a Bloomberg survey of economists.

Lower-income households continue to face the highest inflation rates, even as the gap with the higher-income cohort has narrowed since 2024. Price pressures remain concentrated at the lower end, signaling continued strain on household budgets.

Not every consumer basket looks the same. Lower-income consumers tend to spend more on necessities, like food and shelter.

And, as rising housing costs eat into discretionary budgets, Bank of America payments data finds shelter has been the most persistent upward mover in consumer baskets over the past three years.

Where else has wallet share increased? Entertainment and online retail remain bright spots for lower-income groups, but overall discretionary share growth is increasingly skewed toward those of higher incomes. In fact, these consumers have boosted restaurant and travel spending compared to 2019, while those earning <$50K have cut back on dining out and clothing.

Another concern is that lower-income households continue to feel the biggest price squeeze. Recent analysis from the New York Fed estimated that inflation continues to be highest for lower-income households. In August, estimated overall inflation was 3.0% year-over-year (YoY) for the bottom two income quintiles, compared with around 2.9% YoY for the middle- (40%-80% of income distribution) and higher-income (top 20%) groups. Though this gap has improved since last year, BofA Global Research expects inflation to inch even higher next year, likely leading to further pressure on all households

What makes the inflation impact different for each income group? The breakdown in consumers’ baskets. In aggregate, according to consumer expenditure data from the Bureau of Labor Statistics (BLS), the two largest components of consumer expenditure are housing (33% of the total) and transportation (17%); in other words, necessities that are hard to avoid or cut back on, and that tend to weigh most heavily on lower-income groups. Similarly, food – both groceries and restaurant spending – accounts for around 13% of the consumer spending basket.

The Institute for Supply Management’s purchasing managers index, or PMI, for nonmanufacturing industries rose to 52.6, its highest reading since February and marking the 10th month of expansion in that sector this year.

At the same time, the manufacturing PMI posted a 48.2 reading, its ninth consecutive reading signifying contraction.

Price pressures eased in the services sector, with that index falling to 65.4 from 70, while the manufacturing prices index ticked up slightly to 58.5 from 58 in October.

Lower energy prices provided some cushion for the plastics, rubber and petroleum manufacturing subsectors. At the same time, cost increases for aluminum, copper, electrical equipment and other commodities drove input prices higher across other goods-producing subsectors.

Among non manufacturing subsectors, only construction saw cost declines, the result of broader cooling in the sector as commercial and residential groundbreakings continue to slow. In both broader sectors, however, price pressure remains significantly above the pre-tariff two-year average of 58.9 in the services sector and 50.1 in manufacturing.

New manufacturing orders reached expansionary territory in August and neared that level in October, at 49.4, leading to production growth in September and November.

Monthly apartment rent growth in the United States declined last month in its largest November drop in more than 15 years as an oversupply of units affects all parts of the country.

The national average monthly rent fell to $1,706, a 0.18% decrease from October's revised figure of $1,709. That marks the fifth consecutive month of no change or a decline in monthly rent.

All U.S. regions posted declines in rent in November, with the West leading the country with a 0.4% month-over-month decrease, followed by a 0.2% slide in the South and a 0.1% drop in the Northeast. Rents in the Midwest declined 0.01% in November.

On an annual basis, the Midwest posted the strongest performance in the country with 2.2% rent growth, followed by the Northeast at 1.7%. The South's rents declined 0.1% year over year, while those in the West slid 1.5%.

"Mountain West and Sun Belt markets continue to face elevated vacancy amid aggressive new supply, putting downward pressure on rents," the report found. The steepest monthly rent decline occurred in Las Vegas, down 0.8%, followed by Denver and the Texas cities of San Antonio and Austin, which each fell 0.7%. Salt Lake City, Utah; Raleigh, North Carolina; and Portland, Oregon, each posted a monthly decline of 0.6%.

Q4 2024 -> Toll Brothers spent 6.7% of typical final sales price on incentives

Q4 2025 -> Toll Brothers spent 8.0% of typical final sales price on incentives

Historically, their "normal" incentives rate is 5.0% to 6.0%

Gross margin on home sales for the fourth quarter, by year

• Q4 2018 --> 21.40%

• Q4 2019 --> 20.90%

• Q4 2020--> 20.10%

• Q4 2021 --> 23.50%

• Q4 2022 --> 26.90%

• Q4 2023 --> 27.50%

• Q4 2024 --> 26.00%

• Q4 2025 --> 25.50%

• Inventory climbs for the 25th straight month (+12.6% YoY), but growth is slowing, as the plateau in the post-pandemic supply recovery continues.

• Buyer activity remains soft as homes stay on the market longer (+3 days, YoY) and prices ease (-0.4% YoY). The slowdown is most pronounced in the South and West, while many Northeast and Midwest metros still see faster-than-normal sales due to tighter inventory.

• Delistings remain well above seasonal norms and outpace inventory gains, with about 6% of listings coming off the market each month since June. 

• Affordable “refuge markets” stand out nationally, posting some of 2025’s strongest price gains as cost-conscious buyers shift to lower-priced metros.

These metros had the highest delisting-to-new listing ratio in October:

• Miami: 45 (homes delisted per 100 new homes listed), down from 60 in August, but up from 34 in October 2024

• Denver: 39, up from 37 in August and 24 in October 2024

• Houston: 37, down from 40 in August, but up from 31 in October 2024

In November, the national median list price was $415,000, down 0.4% from last year and 2.2% from last month. The price per square foot—a gauge of home value that accounts for the size of homes on the market—fell slightly (down 1% YoY and 1.2% MoM).

Since November 2019, the typical list price has climbed 36.1%, while the price per square foot is up 48.4%. These long-term increases have significantly affected affordability even before the impact of higher mortgage rates is considered. Most of these increases are a holdover from gains during the pandemic era. Since October 2022, the national median list price is down 0.2%, while the price per square foot is up 3.3%—despite a 42.9% increase in inventory and the median home staying on the market for nine days longer.

By region, price cuts remain least prevalent in the inventory-squeezed Northeast:

• Northeast: 12.8% of listings

• Midwest: 18.2%

• South: 19.1%

• West: 18.5%

Realtor.com data shows buyers shifting to “refuge markets,” where homeownership was still financially feasible after years of elevated rates and sticky post-pandemic prices. Mortgage rates surging past 6% in 2022 created a second, amplifying affordability shock on top of the pandemic price boom, pushing buyers to seek out more affordable metros. For many buyers, the only path to affordability was to move “down-market,” toward metros where prices were 20% to 30% below the national median even at the 2022 peak—enough to offset increased financing costs.