The Fed decided to keep rates unchanged at the June FOMC meeting but signaled that the central bank could cut its policy rate by 50 basis points before the end of 2025. Without a lift from rate cuts since late last year, the housing market has remained soft with sales dropping to a four-month in May due partly to lingering economic uncertainty. The state’s median home price also declined for the first time in 23 months. Meanwhile, consumer spending saw a sharp decline last month and could dampen further due to tariffs concerns and the latest conflict in the Middle East. As a result, the market may remain slow in the short term before picking up later this summer.

Fed holds rates steady but leaves door open: Officials at the Federal Reserve voted unanimously to keep the federal funds rate unchanged at a target range of 4.25% to 4.5% at their June FOMC meeting. The statement issued after the latest meeting cites the easing in market volatility and the diminishing in the uncertainty about the economic outlook as reasons that give the Fed some time to wait before moving further on rates. The uncertainty level remains elevated, nevertheless, and the latest conflict in the Middle East may trigger oil prices to surge and result in more upward pressure on inflation. The latest “dot plot,” however, suggests that a 50 basis-points cut by the end of 2025 is still the central bank’s projection on rate movements. Couple Fed governors, in fact, said after the June meeting that a rate cut in the upcoming July meeting is a possibility. The bond market was initially selling off due to a verbiage change in the Fed’s statement, but the reaction was later unwound after Fed Chair Powell’s clarification. Mortgage rates showed little change after the latest Fed’s decision, as the market had been expecting the central bank not to make any move on rates at the latest meeting.

Housing demand continues to dip as uncertainty remains: California home sales dipped again in May and recorded the lowest level in the past four months, as mortgage rates remained elevated and economic uncertainty continued to linger on. Sales of existing single-family homes declined from the prior month by 5.1% and slipped from the same month of last year by 4%. The year-over-year decline was the largest since Dec 2023 and it was the first back-to-back decline in 17 months. On a year-to-date basis, home sales in the first five months of 2025 barely exceeded the same time frame in 2024 and could dip below last year’s level in the upcoming month if the market continues to lose its momentum. Meanwhile, statewide pending sales continued to decline for the sixth consecutive month, but the year-over-year drop was the smallest in the past six months. The deceleration is an encouraging sign and suggests that closed sales could see a bounce back before the summer ends.

California median price declines for the first time in 23 months: After recording a new high in April, California median price pulled back in May but remained above the $900k benchmark. The statewide median price of $900,170 registered last month declined 1.1% from April 2025 and dropped 0.9% from May 2025. The month-over-month change of -1.1% posted in May came in below the historical average of +1.2% recorded between April and May, and was only the third time in the past 30 years that the market observed a drop in price between those two months. The statewide median price also dipped year-over-year for the first time since June 2023. The decline in the statewide median price could be attributed to multiple factors including elevated interest rates, insurance availability/affordability, economic uncertainty, financial market volatility, home sellers’ willingness to reduce prices, and increase in housing supply. Home prices will likely come down further in the second half of the year, but dips in the coming months are expected to be mild.

Americans spend less after a spring rush to beat tariffs: Consumer spending declined sharply in May following a slight dip in April as shoppers pulled back after a spending surge at the end of the first quarter. Retail sales dropped last month with the monthly growth pace sliding 0.9% in May, a significant fallback from the 0.1% decrease recorded in the prior month. On a year-over-year basis, retail sales were up by 3.3% and recorded the smallest gain in the past seven months. Sales at auto dealers declined sharply last month with a month-over-month drop of 3.5%, while building material tumbled 2.7% from the prior month. Bars and restaurants, which are considered a good example of discretionary spending, also dipped 0.9% after posting the largest overall increase in April. E-Commerce/Nonstore continued to do well, on the other hand, with sales up for the fourth straight month, registering a 0.9% gain in May. The recent trade truce with China might have alleviated some tariff concerns, but the ongoing trade tensions and geopolitical uncertainties will likely dampen consumer and business optimism further in coming months and could lead to a more cautious economic outlook in the second half of 2025.

May housing starts reach five-year low: U.S. housing starts plunged in May with a nearly double-digit month-over-month decline, according to the latest report released by the Census Bureau. Total housing starts fell 9.8% from April and posted a seasonally adjusted annual rate of 1.26 million last month, the slowest since 2020. The decline was primarily driven by a sharp drop in multifamily starts, which plummeted nearly 30% from 472k to 332k. In contrast, single-family housing starts inched up slightly by 0.4% month-over-month in May to 924k units but were still down 7.3% year-over-year. Housing permits also dipped by 2% from April and were down 1% from a year ago. Single-family permits slipped even more with a month-over-month dip of 2.7% and a year-over-year drop of 6.4%. The West (-5.1%) had the biggest monthly drop in single-family permits, but the Northeast (-3.3%) and the South (-2.4%) also experienced pullbacks in May. With builder confidence continuing its downward trend in recent months, construction activity is expected to remain soft in the months ahead.

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Last week’s news continues to provide some mixed signals for the housing market, with the U.S. economic growth falling by 0.3% in the first quarter, homeowners insurance rates projected to rise by double-digits in 2025, and a solid labor market growing by 177k jobs in April. Construction spending, meanwhile, fell for the first time in six months as builders remained uneasy about the ongoing economic uncertainty. With tariff fears remaining a concern for the economy, interest rates could continue to fluctuate, and the housing market may remain soft in the second quarter.

US economy recorded its first negative growth since early 2022: With import surging in the first three months of 2025, the U.S. economy shrank in the first quarter and fell short of consensus expectations. Real gross domestic product (GDP) declined at an annual rate of 0.3% in Q1 2025, primarily due to a sharp increase in imports and a drop in government spending. Imports, in fact, soared 41.3% for the quarter and recorded the largest increase outside the Covid pandemic since 1974. Exports, meanwhile, only rose 1.8% in the first three months of the year. A dip in government spending (-1.4%) for the first time in 11 months and the deceleration in consumer spending (+1.8%) also contributed to the moderation in GDP last quarter. The decline was mitigated by a surge in business investment, with a strong increase in spending on equipment and inventories as businesses stocked up before the tariffs’ effect kicks in. The negative growth in real GDP in the latest quarter was below the gain of 0.4% expected by economists and came in much lower than the increase of 2.4% registered in Q4 2024. With consumer sentiment sliding and some of the consumer/business spendings being pulled forward because of tariffs concerns, economic growth could slow further in the second quarter.

Homeowners insurance rates to rise by 21% in California in 2025: Following a 10% increase in 2024, California homeowners insurance rates will increase an average of 21% in 2025, according to Insurify’s latest home insurance report. The insurance agency predicts that the average annual premium will increase $509 from $2,424 to $2,930 in the Golden State by the end of this year. Losses from the Palisades and the Eaton fires will contribute to rate increases in 2025, but the latest regulatory changes and a new insurance model that allows insurers to weigh future climate risks when pricing premiums are also factors behind the jump in rates. Tariffs on homebuilding materials could further increase home insurance prices, depending on how long trade tensions will linger on. In comparison to the state, an average homeowner at the national level will see an increase of 8% in insurance premium from $3,259 in 2024 to $3,520 in 2025.

Labor market holds up well for now: The latest employment report came in stronger than expected, with nonfarm payrolls increasing 177k in April, surpassing consensus expectations of 133k estimated by Dow Jones. While last month’s job growth slowed marginally from March’s 188k, the solid April employment report suggests that the U.S. labor market remained resilient. In fact, the unemployment rate last month was unchanged at 4.2%, indicating that the market has been relatively stable in the past couple of months. Most of the job growth was in health care (+51k), transportation and warehousing (+29k), and leisure and hospitality (+24k). The federal government employment, on the other hand, declined another 9k in April and has been down 26k since January, as the Department of Government Efficiency (DOGE) drastically downsized the government workforce. Average hourly earnings continued to grow month-to-month and year-over-year, but the annual rate of 3.8% came in slightly lower than expected and remained at the lowest level since July 2024. With the latest employment data showing no immediate concerns for the job market, the Fed will likely keep the federal funds rate unchanged at the next FOMC meeting.

Construction spending edges down after months of steady growth: U.S. construction spending in March fell for the first time in six months after a downwardly revised 0.6% increase in February, according to the latest Commerce Department’s monthly report. The increase came in softer than expected as economists had forecasted total outlays to improve 0.2% month over month. Both residential (-0.5%) and nonresidential (-0.4%) dropped from the prior month, while new single-family edged up 0.1%. The decline in residential spending in March was its first dip since September 2024, and the drop was largely driven by the decrease of 1.2% in home improvement outlays. On a more positive note, multifamily construction spending was unchanged in March after 15 back-to-back declines, which could be a signal that apartment outlays may have found their bottom. With tariffs uncertainty likely to linger on for at least the next few weeks, building material costs will rise in the months ahead while builders will continue to face macroeconomic headwinds in the near term. As such, construction activity and spending could remain soft in the coming months.

Consumers’ expectations hit 13-year low: The Conference Board Consumer Confidence Index declined for the fifth straight months in April and plummeted 7.9 points to 86.0 as tariffs and recession fears continued to mount. The latest drop took the confidence down level to the lowest since May 2020 – the beginning of the COVID era. This sharp decline was attributed mainly to the tumbling of the Expectations Index, which fell 12.5 points to reach the lowest level since October 2011. Consumers were especially concerned about the labor market outlook, as the share who expected fewer jobs in the next six months hit 32.1%, which was nearly as high as that recorded in April 2009 when the economy was in the Great Recession. Survey respondents who mentioned tariffs in write-in responses also reached an all-time high, and those who expected a recession over the next 12 months reached a two-year high.

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California bounced back solidly after a slow start for the year as mortgage rates declined throughout the month of February. While home sales remain soft by historical standards, the increase is a first step in the right direction. Concurrently, the Federal Reserve held interest rates steady but lowered economic growth forecasts, citing trade policy risks. U.S. housing starts also rebounded, while homebuilder sentiment dropped to a seven-month low. Despite rising uncertainty in the economy and the policy arena, rates are expected to moderate later this year, and the housing market should continue to improve in Q2’25 and Q3’25.

Sales of existing homes in California reach a 2-year high: California home sales had a solid rebound in February as mortgage rates declined from their recent high in the second half of January when many sales opened escrow. Closed sales of existing single-family homes jumped 12% month-over-month and reached the highest level in 28 months. Statewide pending sales, however, dipped from last year’s level for the third consecutive month but the drop was much smaller than the decline observed in January. The statewide median price increased 2.8% on a year-over-year basis, but the gain recorded last month was the smallest since July 2023. Price growth will remain positive and moderate throughout 2025, but the statewide median price will likely climb further in the next few months. New active listings at the state level rose year-over-year by double-digits for the second consecutive month but also recorded their first January-to-February decline in the last five years. The unusual dip could either be just a temporary hiccup due to the recent financial market volatility, or it could be a signal of the concern of the economy’s well-being, which could in turn have a lingering effect on supply.

The Fed holds interest steady but lowers economic growth forecasts: The Federal Reserve held the fed funds rate steady in the March’s FOMC meeting and maintained the prediction that the Central Bank will cut rate two times this year. The Fed’s policy statement noted that “uncertainty around the economic outlook has increased,” likely referring to the risks from the Trump’s trade policy and the impact they may have on the economy. The U.S. central bank also lowered their GDP growth forecast and the Fed’s chair Jerome Powell admitted that inflation progress has been delayed this year, partly due to the tariffs. Officials at the Federal Reserve now see inflation being higher this year than previously predicted but still expect the inflation goal to be reached by 2027. The Fed also announced that it will slow the pace of quantitative tightening beginning in April. The financial market reacted positively to the news, with the 10-year treasury yield dipping slightly on the day of the Fed’s announcement and remaining steady in the following two days.

Housing starts bounce back as harsh weather eases: U.S. housing starts rebounded by double-digits after a rough start in January, as weather conditions improved in many parts of the country. Total housing starts in February jumped 11.2% month-over-month after dropping 11.5% in the prior month but was still down 2.9% from the same time last year, according to the latest release from the Census Bureau. Single-family housing starts increased 11.4% from January and hit the highest level in 12 months. Housing constructions surged in the Northeast and the South as disruptions caused by harsh weather subsided, but building activity in the Midwest continued to be dragged down by winter storms. Housing starts in the West also rose, with a 5.9% increase from January and a 26.2% jump from February 2024. Despite a strong bounce back in starts, weak permits data suggests more headwinds for residential construction in the months ahead. Total housing permits dipped 1.2% from January and dropped 6.8% from 12 months ago. The West region had even bigger declines of -7.6% month-over-month and -8.8% year-over-year. With mortgage rates staying high and trade policy uncertainty lingering on, the outlook for residential construction will remain murky in the near term.

Homebuilder sentiment drops to seven-month low: Builder confidence in the U.S. housing market dropped to its lowest level in seven months, with the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) falling to 39 in March, down from 42 in February. Homebuilders are feeling less confident primarily due to concerns over tariffs, elevated mortgage rates, and high housing costs. To help boost market activity, the NAHB survey found that 29% of builders reduced home prices in March, an increase from 26% in February. The average price cut in March was 5%, which was unchanged from the prior month. Sales incentives were used by 59% of builders, also unchanged from February. Regional HMI scores showed declines in all regions, with the Midwest dropping the most by five points, and the West sliding the least by one point. Builders’ expectations for future sales volume remained the same at last month’s 47, which was the lowest level since December 2023.

Mortgage delinquencies edge up in February: Mortgage delinquency rate last month rose month-over-month and year-over-year but remained well below the pre-pandemic level, according to the latest release on delinquencies from Intercontinental Exchange (ICE). Mortgages that were late in payment by at least 30 days or more increased five basis points (bps) to 3.53% in February and were up 19 bps from a year ago. The national delinquency rate was still 32 bps below where it was before the onset of the pandemic in 2020. California was ranked one of the bottom five states by non-current percentage, with a delinquency rate of 2.38% last month, an increase from 2.21% in February 2024. The wildfires in Los Angeles resulted in a surge in mortgage delinquencies in the area, with 4,100 homeowners’ mortgage payment now past due, up from 700 in January. Daily performance data suggests that the number could climb again in March. With home prices expected to rise this year and assuming no recession in 2025, the delinquency rate should maintain its stability throughout the next 12 months.

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