The U.S. economy continues to send mixed signals as we navigate through May 2025. Last week’s Consumer Price Index (CPI) for April showed inflation ticking up slightly after March’s decline. Headline CPI rose 0.2% in April, accelerating from the -0.05% decrease in March, while core CPI also increased by 0.2%, up from March’s modest 0.06% rise. On a year-over-year basis, headline inflation edged down to 2.3% from 2.4%, but core inflation remained stubborn at 2.8% for the second consecutive month.
The housing component of inflation deserves particular attention. The shelter index rose 0.3% in April, accounting for more than half of the all-items index monthly increase. Rent disinflation appears to be stalling, with the rent of primary residence index growing 0.3% month-over-month and holding steady at 4% year-over-year.
This tenacity in housing inflation reflects fundamental dynamics in the rental market. Renters are staying in place longer, allowing landlords to raise renewal rents more aggressively to catch up with open-market rates. Meanwhile, Zillow has revised its 2025 rent forecast upward, with single-family rents now expected to rise by 3.2% and multifamily rents by 2.1%. The share of rental units offering concessions is declining as vacancy rates stabilize.
Housing Market Data: This Week’s Focal Point
This week’s economic calendar spotlights housing market health with critical releases on both existing and new home sales. These reports will provide crucial insights into whether residential real estate – often a leading indicator of broader economic trends – can withstand the uncertain policy climate and affordability challenges.
Builder activity shows concerning trends
Recent data on housing construction has raised some red flags. Single-family home building decelerated notably in April, with starts dropping to 927,000 (seasonally adjusted annual rate) – a 2.1% decline from March and a worrying 12.0% below April 2024 levels.
Several factors appear to be contributing to this pullback:
Economic uncertainty: Trade tensions and stock market volatility in March and April created widespread concern, making builders more cautious about breaking ground on new projects.Slowing demand: Zillow’s April Market Report revealed that newly pending existing home sales fell 2.5% below last year’s level, suggesting buyers were hesitating.Rising inventory: With more homes on the market and slower sales, builders are naturally reassessing their production plans.
Existing home sales: A backward-looking but important indicator
Thursday’s existing home sales report will reflect transactions that went under contract in March, before the full impact of April’s peak uncertainty. Analysts will be watching closely to see if the March figures showed any early signs of the slowdown even before the April stock market plunge.
New Home Sales: A fresher look at market conditions
Friday’s new home sales report will provide a more current snapshot of the market, potentially capturing some of the April hesitation among buyers. New home sales are expected to fall slightly from the previous month.
Market implications and outlook
The housing market’s health carries significant implications for the broader economy and monetary policy. If housing data confirms a meaningful slowdown, it could:
Reinforce expectations of slowing economic growth: A struggling housing market would eventually feed through to declining new construction, lower employment gains and the potential for an increase in the unemployment rate. Industries tied to housing – from construction materials to home furnishings – could see ripple effects.Increase pressure for rate cuts: Signs of housing and labor markets weakness might add urgency to the Fed’s consideration of interest rate reductions.
However, there are reasons to believe any housing slowdown may be temporary. Mortgage rates remain below year-ago levels, contributing to improved affordability. Additionally, the stock market has recovered its April losses, muting any negative wealth effect on consumers’ future spending plans. These factors suggest that the peak home shopping season may simply be delayed rather than dead on arrival.
