US new home sales in December rose to 0.745 million on a month-on-month basis.
This was above the expectation of 0.73 million.
Implications For Growth And Fed Policy
The stronger-than-expected new home sales data from December 2025 indicated underlying strength in the U.S. economy as we started this year. This report, showing a 745,000 annualized pace, suggests consumer demand remains robust despite elevated financing costs. This resilience complicates the path forward for Federal Reserve policy in the coming weeks.
This housing data, combined with the recent January 2026 inflation report where core CPI came in at a sticky 3.7%, has dampened expectations for an imminent rate cut. We are now seeing the probability of a rate cut at the March Fed meeting, as priced into Fed Funds futures, drop below 30% from over 60% just last month. This forces a repricing of rate-sensitive assets across the board.
Given this, traders should consider positions that benefit from interest rates remaining higher for longer. This could involve selling SOFR (Secured Overnight Financing Rate) futures contracts for the second quarter of 2026. Options strategies on Treasury bond ETFs that profit from sideways or downward price movement are also becoming more attractive.
For equity derivatives, we should look at continued strength in the homebuilding sector. Companies are managing elevated mortgage rates, which recently ticked back up to 6.8% for a 30-year fixed loan, better than anticipated. Call options or bullish spreads on homebuilder ETFs may be warranted, as this sector showed a similar ability to outperform during the rate uncertainty we saw through much of 2024.
This environment, where strong economic news delays potential rate cuts, could lead to increased market volatility. The VIX index has been relatively low, but this divergence between economic performance and monetary policy expectations often causes short-term turbulence. We believe purchasing near-term options on broad market indexes could be a prudent hedge against any sharp reactions to upcoming Fed commentary.
