By New England Landmark Realty LTD

The Federal Reserve’s decision to hold interest rates steady at 4.25% to 4.5% wasn’t a shocker. The economy is still hot, and inflation remains slightly above the Fed’s 2% target. While some hoped for faster rate cuts, that’s not happening—at least not until mid-2025. But here’s the real question: What does this mean for Vermont’s real estate market? The rate pause implies that mortgage rates are not likely to decrease significantly in the near future, which could affect both buyers and sellers in the state.

Mortgage Rates Aren’t Cooperating

Even with the Fed lowering rates by 100 basis points (bps) since September, mortgage rates haven’t followed suit. Instead, they’ve climbed from 6.31% to 7.12% since the first cut. Why? Because mortgage rates move with Treasury yields, not just the Fed’s rate cuts. In Vermont, where affordability has already been stretched thin, homebuyers are facing some of the highest borrowing costs in recent memory.

Key takeaway: Until Treasury yields ease and mortgage spreads tighten, rates below 6% are unlikely to occur anytime soon.

Vermont’s Market: High Prices, Low Inventory-A Challenging Landscape. If you’re looking for a home in Stowe, Burlington, or Woodstock, you already know the inventory is tight. The Fed’s decision doesn’t change that. The state’s housing stock remains low, with sellers hesitant to give up their 3% pandemic-era mortgage rates in favor of today’s 7%+ loans.

Meanwhile, new construction has been Vermont’s saving grace, keeping the housing market moving while resales slow. Builders in Chittenden and Washington counties have been offering rate buydowns—essentially subsidizing lower mortgage rates—to entice buyers. These rate buydowns involve the builder paying a lump sum to the lender, which in turn reduces the buyer’s monthly mortgage payments. This is one of the best deals in this market, especially for those who plan to stay in their homes for a long time.

Vermont’s Biggest Challenge: Affordability

With wages lagging behind home price appreciation, affordability is at an all-time low. The median home price in Vermont is hovering around $420,000, but the real story is in specific markets:

  • Burlington: Median prices are up 6.2% year-over-year, exceeding $550,000 in many neighborhoods.
  • Stowe and the Mad River Valley: Luxury homes are still selling, but buyer demand is shifting to smaller properties as high interest rates make financing a second home more challenging.
  • Southern Vermont (Brattleboro, Manchester, Dover): A mix of retirees and second-home buyers has kept prices stable, but sales volume is down.

The Wild Card: Trump’s Policy Moves

One potential shift? Trump’s Treasury Secretary, Scott Bessent, is floating the idea of having Fannie Mae and Freddie Mac buy more mortgage-backed securities. If that happens, we could see narrower mortgage spreads and lower rates—a game-changer for Vermont’s real estate market. This could potentially make homeownership more affordable and stimulate the housing market. For now, though, expect more of the same: high borrowing costs and a slow housing market.

The Bottom Line: What Should You Do?

🔹 If You’re a Buyer: Consider new construction—builders offer incentives that make financing more attractive. Rate buydowns can save you thousands over the life of your loan.

🔹 If you’re a Seller, aggressive Pricing is key. Homes priced right are still selling, but overpricing in this market means sitting on the market longer and getting lowball offers.

🔹 If You’re an Investor: Keep an eye on multifamily properties. Rents remain strong, and high rates keep more people in the rental market.

The Fed may pause, but Vermont’s real estate market isn’t. Do you want a game plan for buying or selling in this environment? Tony Walton and the team at NELandmark.com are here to help—call 802-253-4711 today.