The twisted logic of today's housing economy

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Published Date 7/7/2025

When good is bad and bad is good? Try that one on for size. Economic indicators can be among the most nonsensical-sounding bellwethers. Like the labor market's unexpected strength last month (good, right?), while those waiting for interest rates to drop would not be pleased. Still, says Real Estate News’ Dave Gallagher, it’s a positive sign for home sales in the longer term.

Gallagher reports employers added 147,000 jobs in June, blowing past expectations by nearly 40,000, according to the U.S. Bureau of Labor Statistics. Previous months’ numbers were also revised upward with the overall unemployment rate dropping to 4.1%.

He cites First American’s Sam Williamson, who says this probably means that the Federal Reserve will be less likely to cut interest rates in July, and it lessens the odds of a rate cut in September. And the Feds announced that if the labor market remains strong, the central bank will be less inclined to cut rates soon.

"The housing market has been waiting for a Fed rate-cutting cycle to light the fuse on the 2025 home-buying season, but the labor market's surprising resilience has extinguished some of that optimism for now," Williamson said. The paradox? A stronger job market generally increases consumer confidence and purchasing power.

Despite rate cuts remaining stagnant, mortgage rates continue to drift lower, with the 30-year rate now dropping five weeks in a row. While it’s now at its lowest level since April, however, it hasn't been enough to spark home sales. “Purchase applications were nearly flat this week — an indication that economic uncertainty continues to keep buyers on the sidelines,” says Mortgage Bankers Association's Joel Kan.

And then there are tariffs. With announcements, pauses, and delays, says Anthony Smith, a senior economist at Realtor.com, any renewed volatility in trade policy could significantly impact market conditions during the second half of the year. "For now, elevated borrowing costs are still limiting buyer activity, and homes are spending more time on the market, supporting the ongoing buildup of inventory and modestly shifting leverage back toward buyers."

Now that summer is nearly upon us and the spring buying season is beginning to appear in the rearview mirror, seasonality will start working against home sales in the short term, according to Bright MLS’ Lisa Sturtevant. "The kick-off to summer usually means a slowdown in home shopping as some individuals and families are busier with vacations and traveling," she said.

Translation? Inventory should continue to climb and begin to approach pre-pandemic levels nationally, with the South and West markets having already reached these levels. All this and more, since home price growth continues to slow. “In its latest monthly report released on July 1, Cotality estimated home prices increased 1.8% in May, the slowest year-over-over increase since the winter of 2012,” says Gallagher.

"With the annual growth rate now slower than the rate of inflation, real home prices are falling, which suggests improved affordability going forward," Cotality Chief Economist Selma Hepp wrote in the report.

RealEstateNews, TBWS

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