June 9, 2025 – The housing market remains soft but is showing signs of improvement. The Home Purchase Sentiment Index, for example, reached a six-month high in May, reflecting improved consumer sentiment towards buying and selling homes. Home price reductions, on the other hand, have climbed to levels last seen in 2016 due to elevated mortgage rates and increased inventory. Mortgage demand dipped slightly at the end of May but remained higher than last year's level. Meanwhile, U.S. job growth exceeded expectations last month, although downward revisions to previous months suggest that the labor market is losing some momentum.

Housing sentiment reaches 6-month high: The Home Purchase Sentiment Index (HPSI) released by Fannie Mae continued to rise for the second straight month in May and reached the highest level in six months. The increase of 4.3 points from the prior month pushed the index to 73.5 and the level reached last month was higher than the year-ago level by 4.1 points. Consumers who believed now is a good time to buy climbed to 26% from 23% in the prior month and reached the highest level since February 2022. Those who believed now is a good time to sell also bounced back month-over-month with an increase of three points to 61% but remained the second lowest in the past 16 months. The jump in HPSI in May was due partly to the recent improvement in interest rates, as the share of respondents who said that mortgage rates will decline in the next 12 months increased to 29, the highest level in three months. Fewer of them also expected their personal financial situation to get worse over the next 12 months, as the share who believed that will be the case dropped to 24% from 31% in the prior month.

Job growth slows but exceeds expectation: U.S. job growth came in stronger than expected, with nonfarm payrolls increasing 139k in May, surpassing consensus expectations of 125k estimated by Dow Jones. While last month’s employment conditions held up better than many economists expected, the downward revisions to job growth in March (-65k) and April (-30k) suggest that the resilience of the labor market is weaker than previously thought. The unrounded unemployment rate, indeed, increased slightly from 4.18% in April to 4.24% in May. Most of the job growth remained in health care (+62k) and leisure and hospitality (+48k). The federal government payrolls, on the other hand, declined by another 22k in May and have dipped 59k 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, and the annual rate of 3.9% came in slightly higher than expected. With the latest employment report showing no signs of immediate concern, the Fed could keep the federal funds rate steady at the next FOMC meeting.   

Home price reductions climb to levels last seen in 2016: More price cuts have been observed in the housing market in the past nine years, according to the new data released by Realtor.com. Reductions on offer prices were observed on 19.1% of all for-sale homes last month, the highest level for any May since at least 2016. At the state level, 37% of all active single-family home listings in California had a price reduction at the end of last month, the highest level for the same period since at least the last five years. Elevated mortgage rates and the recent increase in housing inventory are reasons for the softening in home prices in the past few months. Total active listings in California in April, for example, rose on a year-over-year basis at the fastest pace since January 2023. The level of active listings statewide in April reached a 66-month high and recorded its 15th consecutive month of annual gain in housing supply. Home prices could see similar price reduction patterns in the next few weeks if interest rates do not see any consistent downward trend.

Mortgage demand dips at the end of May: Mortgage applications pulled back slightly over the last week of May but remained higher than 2024’s level, according to latest data released by Mortgage Bankers Association. With mortgage rates steadily increasing for three straight weeks since the beginning of May, mortgage demand softened further at the end of the month, despite improvements in rates during the same period. Purchase applications (seasonally adjusted) declined 4% week-over-week, but the unadjusted purchased index jumped 18% from the same week a year ago. The year-over-year gain offers some encouraging news that momentum is still there and could pick back up once the market has more clarity about the economy and the interest rate movement.

More Americans are moving in 2025: The total number of people moving increased for the first time in four years, according to Bank of America account data. While the aggregate total is still nearly 25% below the level observed during the onset of COVID, those who moved within the same city or metro area increased nearly 11% on a year-over-year basis in Q125, and those who moved to a different metro area jumped 7% from 12 months ago. While mortgage lock-in effects continue to have an influence on Americans’ moving pattern in the past few years, life events go on, and more people begin to relocate to meet necessary living adjustments. Higher costs of borrowing in the last couple of years created more challenges for homeowners who want to move, but Americans are slowly accepting the new normal. In fact, more people could be on the move in the next 12 months. According to the 2025 Bank of America Homebuyer Insights Report, prospective homebuyers are feeling more positive about this year’s buying conditions than last year’s. More than half (52%) of the survey respondents believe this year is a better time to buy than last year. That’s an increase from 48% in 2024 and a sizable jump from 38% in 2023. If many buyers decide to make their home purchases, we could indeed see another uptick in the total number of movers next year.

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