In July, the U.S. housing market showed signs of weakness as California home sales and prices softened further. Pending sales also fell sharply, while inventory climbed to their highest level in nearly six years, as high mortgage rates and economic uncertainty continued to linger on. Nationally, housing starts surprised to the upside but permits continued to decline, pointing to ongoing slowdown in single-family construction, despite multifamily demand remaining resilient. Buyers’ caution was also evident in the record-high share of canceled contracts, while fix-and-flip investors scaled back amid rising costs, labor shortages, and slowing price appreciation. Against this backdrop, Federal Reserve Chair Powell signaled that a September rate cut is likely as the central bank could begin to shift its focus back to job growth, since labor market risks appear to be rising.

California Housing Market Cools in July as Sales Slide, Prices Dip, and Inventory Hits Six-Year High: California’s housing market weakened in July as sales fell both month-over-month and year-over-year, marking the fourth straight annual decline and pushing year-to-date activity into negative territory for the first time in six months. Elevated mortgage rates and economic uncertainty kept many buyers on the sidelines, while pending sales registered their sharpest annual drop since late 2023. The statewide median home price slipped year-over-year for the third straight month to a five-month low, despite seeing price gains persisted in many counties across the state. On the supply side, active listings continued to increase from the year-ago level for the 17th consecutive month, reaching their highest level in nearly six years. While broad-based growth continued to be observed in almost every county, the pace of increase in inventory has begun to slow in recent months. Overall, the market reflects an ongoing pullback in demand as high borrowing costs and economic uncertainty continue to keep buyers on the sideline.

Housing Starts Jump in July, but Falling Permits Signal Ongoing Weakness in Single-Family Construction: In July, U.S. housing starts jumped unexpectedly, but a continued decline in building permits pointed to ongoing weakness in residential construction, especially in the single-family sector. Single-family starts rose 2.8% but remained down year-to-date, with regional growth concentrated in the South. Permits have been trending lower since February and could pull back further in the months ahead as builders remain cautious about the current home building environment. Builder sentiment worsened in August, as the NAHB Housing Market Index fell nearly to its lowest level in over a decade (outside the pandemic era), as housing affordability and soft demand remain ongoing concerns for developers. Meanwhile, multifamily construction has gained momentum, with starts up nearly 19% year-to-date, supported by strong rental demand amid high homeownership costs. Although multifamily permits dipped in July, the overall trend remains stable, particularly in the South and Midwest, where developers continue to respond to demand for apartments.

Home-Purchase Cancellations Hit Record High for a July as Buyers Pull Back amid Rising Costs and Uncertainty: In July 2025, about 58,000 U.S. home-purchase contracts – or 15.3% of pending sales – were cancelled, according to a study published by Redfin. The cancellation rate last month was the highest on record for a July going back to at least 2017. The increase in the number of home purchases falling through reflects buyers’ hesitation amid elevated mortgage rates, high home prices, and market/economic uncertainty, as many buyers exercise contingencies or seek better deals. Cancellations were most pronounced in high-growth markets such as San Antonio, Fort Lauderdale, and Jacksonville, while more stable areas like New York and Seattle saw far fewer terminations. A few of the major metros in California that experienced increases in cancellations from a year ago include Los Angeles (16.5%), Riverside (19.5%), and San Diego (16.1%). Sacramento (14.3%), on the other hand, was one of the 11 metros that fell in cancellations year-over-year. The trend underscores a “buyer’s market” dynamic, where affordability challenges and cautious sentiment are keeping demand restrained before mortgage rates started declining in recent weeks.

Fix-and-Flip Investors Retreat as Rising Costs, Labor Shortages, and Slowing Home Prices Erode Market Momentum: In the second quarter of 2025, fix‑and‑flip activity slowed notably as developers faced mounting cost pressures and labor shortages, according to an index from John Burns Research and Consulting and Kiavi, a lender focused on the real estate investor. Investor sentiment fell, with only 30% reporting “good” sales – down from 38% a year prior, prompting many professional flippers to scale back deal volume even as ROI margins held steady near 30%. Regions like Florida, Northern California, and the Southwest experienced the greatest headwinds due to elevated insurance costs, competition from homebuilders, and cooling home price appreciation.

Powell Signals September Rate Cut as Fed Balances Persistent Inflation with Rising Labor Market Risks: Federal Reserve Chair Jerome Powell signaled that monetary policy easing is likely to take place in September, citing a shifting balance of risks between persistent inflation and a softening labor market. While inflation pressures remain elevated due partly to tariffs, Powell believed with more confidence now that these effects could be transitory. He noted that while unemployment remains stable, downside risks to employment are increasing, which requires the Fed to shift its focus back to maximizing sustainable employment. With policy still restrictive but closer to neutral than a year ago, Powell reiterated that the upcoming decisions will be data-dependent and stressed that the Fed will adjust carefully to evolving economic conditions rather than follow a preset course. Following Powell’s speech at Jackson Hole, mortgage rates posted their biggest drop since August 1, slipping to the lowest level since October 3, 2024, according to Mortgage News Daily.

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Inflation continued to rise, with both consumer and wholesale prices experiencing increases in July, indicating that the inflation threat is far from over. Despite this ongoing macroeconomic concern, retail sales have shown resilience, bolstered by events like Amazon’s Prime Day and strong demand in certain categories. Small business optimism has also climbed back above 100 and remained above the 52-year average, driven by better business conditions and legislative changes, despite ongoing uncertainty and inflation concerns. Meanwhile, California’s housing affordability remains near its cyclical low, with a slight improvement from the previous year but a decline from the prior quarter.

California housing affordability remains near its cyclical low in second-quarter 2025: Housing affordability in California dropped from the prior quarter but improved from the same quarter of last year. The statewide housing affordability index (HAI) for existing single-family homes fell two percentage points (pp) from Q125 to 15% in Q225 but inched up from its year-ago level by 1 pp. A minimum annual income of $232,400 was required to make the monthly payment of $5,810, including principal, interest, and taxes (PITI) on a 30-year fixed-rate mortgage at 6.90% in California. The minimum income required in Q225 was $4,400 less than the record high reported in Q224. Compared to a year ago, affordability improved in 41 counties but declined in four and showed no improvement in eight. Mortgage rates, while dipping below the levels of the previous quarter and of the same quarter of last year, continued to stay elevated and kept borrowing costs near their all-time highs, which was the primary reason for why affordability remained near its cyclical low. With rates expected to show more fluctuations in Q325, housing affordability may not change much in the current quarter.

Inflation remains on the rise: The headline Inflation figure held steady in July and was mostly in line with economists’ expectations. The Consumer Price Index (CPI) was up 0.2% from June as both food and energy prices moderated and increased 2.7% on a year-over-year basis. Excluding energy and food, core CPI registered a year-over-year gain of 3.1% last month and reached the highest level since February. While new vehicle prices remained flat from the prior month, tariff-sensitive items such as footwear and household furnishings saw sharp price hikes in July. Core services’ inflation picked up a stronger than expected 0.4% last month, with airline fares rising 4% while medical care and transportation services also posted solid gains. The producer price index (PPI) that reflects wholesale inflation measure also heated up last month, with both the headline and the core indices jumping 0.9% on the month, surpassing the Dow Jones estimate for a 0.2% gain. The latest reports on consumer prices and wholesales prices imply that the inflation threat is far from over and the effects of tariffs will likely continue to put upward pressure on prices in the remaining months of 2025.

July retail sales get help from Prime Day: Consumers spending continued to show strength after a dramatic drop in spring. After dipping 0.8% month-over-month in May, U.S. retail sales increased another 0.5% in July after a revised 0.9% gain in June, matching the consensus expectations polled by the Wall Street Journal. The increase was driven in part by a solid growth in demand for auto sales (+1.6%), but a 1.4% sales gain in furniture stores, and a 0.8% gain in sales at sporting goods stores also boosted the overall retail sales last month. Sales in the latter two categories, however, are tariff-sensitive and the stronger dollar sales volume could just be a reflection of higher prices rather than more units being bought. Amazon’s first four-day Prime-Day sales last month also could be a factor that pushed up sales more than normal as the sales event typically lasted only two days in the past. The firmer sales growth last month, nevertheless, suggests that American consumers are still spending, but they will remain price conscious and choosy as firms slowly pass costs on to them.

Small business optimism climbs back above 100: The NFIB Small Business Optimism Index increased 1.7 points in July to 100.3, after remaining virtually flat in the prior month. The level of optimism for small business owners remained above the 52-year average of 98 as respondents who reported better business conditions jumped 14 points from June and reached a net 36% in July. The passing of the One Big Beautiful Bill in early July and stock market indices reaching record highs could be contributing factors to the boost in business owners’ confidence last month. Despite the improvement in overall optimism, level of uncertainty remained elevated with the uncertainty index surging eight points from June to 97 as tariffs and inflation concerns continued to linger on. While one in ten (11%) owners mentioned that inflation was their single most important problem in operating their business, the net percent of respondents raising average selling prices fell five points from June to a net 24%. A net 28% planned to increase prices in the next three months, a dip of 4 points from the prior month. The level remains well above its historical average though and suggests that continued inflation will remain in the months ahead.

“Lock-in effect” persists but is slowly getting better: In the first quarter of 2025, 81% of outstanding mortgage debt had interest rates below 6%, an increase of 4.4 percentage points from first quarter of 2024, according to a Realtor.com analysis based on data from the FHFA National Mortgage Database. One out of five (20.7%) of the outstanding mortgages were below 3%, one-third (32.7%) of them between 3% and 4%, another one-fifth (17.9%) between 4% and 5%, and one-tenth (9.9%) between 5% and 6%. With interest rates remaining elevated but homebuying activity continuing – albeit at a slower pace – the share of mortgages below 6% could fall closer to 75% by the end of 2025.

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In the first half of 2025, California’s home sales remained flat compared to the previous year, despite a slight increase in June. Meanwhile, the statewide median home price fell for the second consecutive month, reflecting market uncertainty and elevated mortgage rates. For the economy, retail sales rebounded in June buoyed by consumer spending resilience. Tariff-induced price increases, however, might have played a role in the bounce back, as inflation also showed a bigger jump in June. As such, the Fed is largely expected to stay put on rate cuts in their upcoming meeting at the end of July.

Home sales were flat in the first half of 2025 compared to last year: California home sales bounced back in June with an increase of 4% from the previous month but remained below last year’s level by 0.3%. The year-over-year decline marked the third consecutive drop and was the first time since late 2023 that annual sales fell three months in a row. Year-to-date sales for the first half of 2025 were up 0.2% but may fall behind last year’s pace if market activity remains stagnant. Statewide pending sales declined for the seventh consecutive month in June, posting the largest year-over-year drop since January 2025. With mortgage rates rising steadily in the past couple of weeks, housing demand will likely remain soft for the month of July.

California experienced back-to-back declines in prices: California’s median home price fell for the second straight month in June, slipping below the $900,000 mark for the first time in three months. The median price of $899,560 declined 0.1% from May and 0.1% from the same month of last year. June’s monthly decline was not in line with the historical average gain of 0.8%, suggesting non-seasonal factors such as market uncertainty and elevated mortgage rates are having a negative lingering effect on housing demand and home prices. Seasonal patterns and further growth in housing inventory could soften home prices further in the coming months, which means the market may have already seen the peak price of the year. Despite the recent slowdown in prices, the state is still on track to register a modest single-digit year-over-year price gain in 2025.

Total housing starts ticked up but single-family homebuilding hit 11-month low: Housing starts bounced back in June after hitting a five-year low but continued to stay below their year-ago level, according to the latest report released by the Census Bureau. Total housing starts rose 4.6% from May and posted a seasonally adjusted annual rate of 1.32 million last month. The bounce back was driven by a surge in highly volatile multifamily starts, which jumped 30.6% from 317k in May to 414k in June. Single-family housing starts, on the other hand, dropped 4.6% month-over-month in June to 883k units and were down sharply by 10% year-over-year. Housing permits continued to suggest a softer outlook for the construction industry and inched up 0.2% from May and declined 4.4% from a year ago. Single-family permits slipped month-over-month with a dip of 3.7% and were down year-over-year by 8.4%. The West (-6.1%) had the biggest monthly drop in single-family permits, but the Midwest (-3.2%) and the South (-3.2%) also pulled back last month. With tariffs creating uncertainty for the economy and higher homeownership costs weighing on housing demand, construction activity is expected to remain soft in the months ahead.

Inflation is getting warmer in June: Goods and services costs for consumers experienced the largest monthly increase since January as the effect of tariffs began to percolate into prices in June. The Consumer Price Index (CPI) last month was up 0.3% from May as both food and energy prices went up. On a year-over-year basis, the headline CPI went up by 2.7% and recorded the highest yearly growth in four months. Excluding energy and food, core CPI registered a year-over-year gain of 2.9% last month, which was also the highest in four months. While vehicle prices continued to trend down on a monthly basis, tariff-sensitive items such as apparel and household furnishings saw price increases in June. The wholesale inflation measure, on the other hand, was unchanged last month. The headline producer price index (PPI) was flat with a 0% change between May and June, and so was the core PPI. Goods producer prices, however, rose 0.3% last month and the increase was the latest indication that tariffs were starting to lift inflation. The two latest reports imply that the inflation threat is far from over and the effects of tariffs will become more evident in the second half of 2025, especially if higher duties were to be implemented on August 1.

U.S. retail sales bounced back partly due to tariff-driven price increases: American shoppers spent more than expected in June, as consumer spending rose strongly last month after a sharp decline in May. After falling 0.9% month-over-month in May, U.S. retail sales rebounded with a 0.6% gain in June, beating consensus expectations of 0.2% increase polled by the Wall Street Journal. The increase was driven in part by a solid growth in demand for motor vehicles (+1.2%), but a 0.6% gain in bars and restaurants’ sales also boosted the overall retail sales last month. Almost all major store types improved in sales in June, except for furniture stores (-0.1%), and electronics and appliances stores (-0.1%). On a year-over-year basis, retail sales were up by 3.9%, a bounce back from the growth pace recorded in May. Control group sales, which exclude volatile categories such as food services and gasoline stations, have slipped to the lowest annual rate in eight months though. Since the reported retail sales figures are not adjusted for price increases, tariff-induced inflation could also have pushed the overall sales up a notch. According to Wells Fargo analysis, the yearly gain in real retail sales after inflation adjustment was 3.2% in June, which is the smallest increase since August 2024. The bump-up in consumer spending, nevertheless, is still a pleasant surprise about the U.S. economy and is a reminder that the American consumer should not be counted out just yet.

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