MarketTrends 05/23/2025: Spring's Mixed Housing Market

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Last year, it was widely held that more home sales would happen if there were more homes available to buy. In the start of this spring's homebuying season, that was actually the case, but to little effect. In April, the inventory-to-sales (I/S) ratio for existing homes moved up to 4.4 months of supply at the present rate of sale, an actual 1.45 million properties available, up 9% compared to March and 21% compared to April 2024. The current I/S ratio is the highest it has been in nearly five years, excepting one early pandemic-shutdown month (May 2020). Still, sales are slack.

Existing home prices are still crawling higher despite tepid sales. While the rate of increase has slowed recently, April's $414,000 median sales price is still up by 1.8% over last year, a record for any April, and within shouting distance of last year's all-time record of $426,900 reached in June. Needing only a 1.2% increase in each of the next two months collectively (or a single 3.1% jump), it seems very likely that we'll see another new record for existing home prices when June's sales are tallied at the end of July.

At about one-sixth the size of the existing home market, the market for newly-constructed homes has been seeing rather different conditions for some time. We learned last week that the nation's homebuilders in May were less sanguine about the prospects for selling the homes they build, but this week we learned that sales of new homes rose by 10.9% in April, climbing from a 670,000 annual pace to a 743,000 yearly clip. This was the fastest pace for sales in more than three years, and outside of the work-from-anywhere pandemic distortion, a figure very comparable to the best seen in the post-housing crash's eight-year recovery from 2011 to 2019.

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Inventory of new home stock for buyers to purchase have been ample for some time, and even with the April bump in sales still remain at 8.1 months of supply at the present rate of sale. The actual 504,000 (annualized) units available last month is still the second highest in seventeen and half years and surpassed only by the absolute peak period of the mid-aughts housing boom. Certainly, a potential new home buyer has theoretically plenty of houses from which to choose.

While the level of inventory is important for new homes, it's less the case than with existing. After all, even if there's nothing presently available, a new home can be built to order. What's perhaps more important to keeping new home sales going is both a relative and actual sense of value. Unlike prices of existing homes (which continue to rise), costs to purchase a new home have retreated meaningfully from their peak levels of a couple of years ago, and the current $405,600 cost for one in April is both lower than when the year began, some 2% lower than April of last year and nearly 12% below October 2022's record high. The current median price for a new home is actually below that of an existing home, so where new stock is available it is competing very effectively against existing homes.

That's even without considering other builder incentives outside of price reductions. Offers of temporary or even permanent financing assistance such as paying points or offering below-market interest rates are something that few existing home sellers are willing to or can offer, and this lends some advantage to the new home market at a time of challenging affordability. As well, a house containing brand-new everything and backed by warranty are also strong selling points. But at the end of the day, it's cost that rules, and the monthly carry cost for a new home is currently actually less than that for an existing home.

There wasn't a whole lot of other fresh economic news out this week, but what there wasn't exactly encouraging. The Conference Board's index of Leading Economic Indicators declined by a full 1% in April, it's largest single monthly decline in two years, leaving this indicator at a five-year low. The LEI is purportedly a forecasting tool for where the economy is headed, but this indicator has posted only a single positive reading since February 2022 (and one "unchanged" value). Even with multiple years of declines in the LEI, the economy has not entered a recession and has even had some periods of fairly robust growth over that time. As such, the LEI probably better reflects conditions in the month in which its components are sourced, so April's level of activity was somewhat below March's level, but likely still fair enough.

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A different measure of what's happening in the economy comes from the Federal Reserve Bank of Chicago. Their National Activity Index boils down some 85 economic series into a single number to determine if the economy is growing above or below its "potential", or ability to grow without throwing off imbalances such as inflation. "Potential" isn't a fixed number, but is presently thought to be a GDP range from perhaps 1.8% to 2.4% or thereabouts. Wherever potential lies, April's figure was just slightly below that mark, coming in at -0.05 for the month. That said, the three-month moving average for this indicator was actually +0.05, so GDP may be somewhere right around potential at the moment. At least as reckoned by the FRB/Atlanta's GDP now model, that's about right, as the 2.4% pace for the second quarter referenced there (through May 16) is right in the ballpark.

Manufacturing conditions have been less than stellar of late, what with uncertain demand and rising cost inputs. A report from the Kansas City Fed covering the Fed's Tenth District was tepid at best, posting a value of -3 for May, a meager improvement on April's -4. Some components of the report did see some improvement, as new orders moved up from -11 in April to -9 in May, a better grade of poor, while employment conditions staged an actual improvement, rising 14 points from -11 to +3 this month. Perhaps as encouraging was that prices paid for goods stepped back last month a little, breaking a three-month string of increases, at least for now. Given ongoing tariff uncertainties and three-month "pauses" on the worst of the levies, it may be that this is just a temporary reprieve.

With mortgage rates edging higher, new requests for mortgage credit turned lower. In the week ending May 16, the Mortgage Bankers Association reported a 5.1% decline in overall applications for new mortgages. Requests for loans to purchase homes declined by 5.2% while those to refinance existing mortgages slid by 5%. Without some assistance from lower mortgage rates, purchase activity will likely just stumble along and refinances will remain quite subdued.

Labor conditions remain fair, at least as gauged by the number of folks applying for unemployment assistance. In the week ending May 17, just 227,000 new applications for benefits were filed around the country, holding nearly flat for a third consecutive week, if one that is slightly above month-ago levels. Not holding flat was the number of folks receiving continuing claims, which rose by 36,000 to 1.903 million in the latest week. It's still the case that few folks are losing positions but equally true that they are struggling to catch on quickly elsewhere when they do.

Now at the unofficial start of summer, it's starting to look as though the spring housing season this year won't each reach the "lofty" levels of last year, at least for existing home sales. In the last March-April-May period of 2024, annualized sales were 4.22 million, 4.14 million and 4.11 million. With May yet to come, sales so far this year are 4.02 and 4.00, and it doesn't seem as though a big blast in May sales is terribly likely. Sales of new homes do have a chance to beat last year, but that will require a May sales pace of 663,000 (annualized) or better, which isn't a certainty.

All those odds would be improved is mortgage rates could find some space to decline; even a modest retreat of 25 basis points or so would likely be enough to see more potential folks jump in to the market. Unfortunately, that's not been the case of late and isn't likely to be the case next week, either. We expect to see a 3-5 basis point increase in the average offered rate for a conforming 30-year fixed-rate mortgage as reported by Freddie Mac. While not much, any increase isn't helpful, and mortgage rates closing in on four-month highs isn't what anyone is hoping to see.

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Although there is much uncertainty and the financial markets have been volatile, we're undaunted, and offer our latest Two-Month Forecast for mortgage rates covering late April through late June.

See our 2025 Mortgage and Housing Market Outlook, covering mortgage rates, housing conditions, the Fed and lots more.

Also, for a really long-run outlook, you'll want to review "Federal Reserve Policy and Mortgage Rate Cycles".

In most areas, home prices have been rising for years. If you're curious about how much home equity you have -- or will have at a future date -- you should check out HSH's KnowEquity Tracker and Projector, our unique home equity calculation and forecasting tool.

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