July 28, 2025 – The U.S. and the European Union (EU) have successfully negotiated a trade agreement, averting a potential tariff war. The latest development will hopefully provide some direction regarding where the economy and the market are heading in the second half of the year. The U.S. housing market needs that clarity, as recent data suggests that new home sales have been losing momentum while builder confidence remained at a low level. Meanwhile, the labor market remains stable and foreign investment in U.S. residential real estate has seen a resurgence for the first time since 2017. All these moving parts collectively paint a complex picture of the current housing market landscape and its potential implications for the future.

U.S. and EU reaches a trade deal: The U.S. and European Union (EU) struck a framework trade agreement on July 27, 2025, averting a tariff war. The EU agreed to a 15% tariff on most exports to the U.S, while American goods exported to the region will face no tariffs. The EU also pledges to invest $600 billion in the U.S. and purchase $750 billion in American energy by 2028. With the EU trade deal, the overall average effective tariff rate will reach 18.2% as compared to the 2.4% in early January, according to an analysis by the Budget Lab of Yale University. While the trade deal might have averted a potential trage war, the resulting tariff effect could mean an increase in consumer prices of 1.8% in the short run in the U.S. and could lower its GDP growth rate by -0.5 percentage points each over calendar years 2025 and 2026.    

U.S. new home sales bounce back but down for the West: Sales of new U.S. single-family homes inched up by 0.6% month-over-month in June after a deep dive in the prior month. The slight increase to 627k units came in lower than the consensus expectations of 650k units and was 6.6% below the level in June 2024. Sales activity increased from the prior month in the Mid-west (+6.3%) and the South (+5.1%) but declined in the North-east (-27.6%) and the West (-8.4%). With mortgage rates rising in the first couple weeks of July but dipping in the second half of the month, homebuyers may continue to stay on the sideline until there is more clarity on the economy and the market. As such, sales activity on new housing units could remain sluggish in July. Meanwhile, new houses for sale increased to 511k and reached the highest level since September 2007. At the current sales pace, it would take 9.8 months to clear the inventory if no new housing units were added. With inventory remaining on the rise, residential construction could slow further in the next few months as builders put their projects on hold.

Builder confidence inches up but price cutting hits 3-year high: The latest NAHB/Wells Fargo Housing Market Index shows an improvement in homebuilder confidence in July, climbing up one point to 33 from the prior month. Despite the slight increase, the index has remained below the neutral threshold of 50 for the 15^th consecutive month, signaling continued challenges in the housing market. While the passage of the One Big Beautiful Bill Act - which provided some tax reliefs for home builders, businesses, and households - boosted the confidence level up on a month-over-month basis, housing demand remains weak with traffic of prospective buyers falling one point to 20. An increasing number of builders (38%) lowered prices in July to attract buyers, and the share who cut prices reached the highest level since 2022. Regionally, sentiment rose in the Northeast, stayed flat in the Midwest, and declined in the South and West. Sales expectations in the next six months, however, were more upbeat and increased three points to 43.

Jobless claims reach 3-month low but new rehiring remains slow: The jobless claims report from the U.S. Department of Labor released last week shows that the labor market remains stable, despite seeing continuous signs of softening. For the week ending July 19, initial claims for unemployment benefits declined 4k to 217k, marking the sixth consecutive weekly drop and the lowest level since mid-April. At the state level, California was one of the three states – along with New York and Michigan - that saw a decrease of more than 4k initial claims filed during the week of July 19. On the other hand, continuing claims — which reflect the number of people still receiving unemployment benefits — ticked up slightly after edging down in the prior weeks. For the week ending July 12, seasonally adjusted continuing claims rose by 4k to 1.955 million, while the four-week moving average climbed to 1.957 million, the highest level since November 2021. The latest reading staying near the 3 ½ year high attained in mid-June suggests that the pace of new rehiring could continue to be slow even as new layoffs remain subdue.

Foreign buyers’ sales increase for the first time since 2017: The National Association of Realtors’ 2025 report on international transactions in U.S. residential real estate shows a notable resurgence in foreign investment, with international buyers purchasing $56 billion worth of U.S. homes between April 2024 and March 2025 - a 33.2% increase over the prior year. The number of homes bought during the period jumped 44% to 78,100, marking the first annual increase since 2017. The most active buyers came from China (15%), Canada (14%), Mexico (8%), India (6%), and the United Kingdom (4%), with Florida remaining the top destination for international buyers, followed by California, Texas, New York, and Arizona. Most foreign investors are targeting vacation homes or rental properties, especially in sunbelt states with appealing climates and robust rental markets. Despite the strong increase in foreign buyers’ home sales, the number of international transactions is still the second lowest level recorded since NAR started tracking foreign buyer purchases in 2009. With trade tensions and tariffs continue to have an impact on global economic growth and currency exchange rates, the outlook for international home sales in the U.S. could remain murky in the next six months. 

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