Home Sales Rise, Fed Holds Rates Steady

Markets got a dose of good news as the United States and Iran signed an agreement to extend their ceasefire and reopen the Strait of Hormuz, easing concerns about global energy supplies. Meanwhile, the Fed held rates steady in Kevin Warsh's first meeting as Chair, and housing data was mixed. Here are some key takeaways.

·      Fed Leaves Rates Unchanged

·      Housing Construction Slows as Builders Remain Cautious

·      Pending Home Sales Continue to Rise

·      Economic Snapshot: Consumer Spending and Jobless Claims

Fed Leaves Rates Unchanged

In Kevin Warsh's first meeting as Fed Chair, the Federal Reserve unanimously voted to leave its benchmark Federal Funds Rate unchanged at 3.50% to 3.75%. This marks the fourth consecutive meeting without a rate change following cuts late last year.

While the Federal Funds Rate does not directly set mortgage rates, it influences borrowing costs throughout the economy and can affect the overall interest rate environment.

What’s the bottom line? The meeting provided an early look at Kevin Warsh's leadership style. He reiterated that the committee “will deliver price stability” and announced five new task forces focused on areas including Fed communications, economic data, the balance sheet, productivity and jobs, and the Fed's inflation framework.

Together, these changes suggest Warsh is looking to modernize how the Fed gathers information, communicates with the public, and evaluates economic conditions as it makes future policy decisions.

Housing Construction Slows as Builders Remain Cautious

The pace of new home construction slowed sharply in May. Housing starts, which measure new homes breaking ground, fell 15.4% from April to an annual rate of 1.18 million units – the lowest level since 2020 and well below expectations.

Building permits, a key indicator of future construction activity, also edged down 0.7% to an annual rate of 1.413 million units, largely in line with forecasts.

Builders continue to take a cautious approach. The National Association of Home Builders' Housing Market Index slipped two points in June to 35. Any reading below 50 indicates that more builders view market conditions as poor than good. Affordability challenges, elevated mortgage rates, and higher construction costs remain key concerns.

What’s the bottom line? While the housing market needs more inventory to meet demand, bringing new homes to market takes time. Builders must move through the permitting, construction, and completion process before additional supply becomes available. If mortgage rates move lower and buyer demand increases, limited inventory could continue to support home prices in the months ahead.

Pending Home Sales Continue to Rise

Pending home sales, a key measure of signed contracts on existing homes, rose 3.8% from April to May, exceeding expectations and marking the fourth consecutive monthly increase. Sales were also 4.8% higher than a year ago, with gains reported in all four major U.S. regions.

What’s the bottom line? Lawrence Yun, Chief Economist at the National Association of REALTORS®, points to a "late spring buyer rush" as evidence that buyer demand remains stronger than many expected, even with elevated mortgage rates. If that demand persists while housing inventory remains limited, competition for available homes could stay elevated.

Economic Snapshot: Consumer Spending and Jobless Claims

Retail sales increased 0.9% in May, significantly exceeding economists’ expectations. Sales also remained stronger than expected after excluding gasoline purchases, suggesting the gain was driven by broader consumer spending rather than simply higher gas prices at the pump.

On the labor side, new unemployment claims remain relatively low at about 226,000. However, that number may not fully capture labor market strain, as some displaced workers are turning to freelance or gig work instead of filing for benefits.

Meanwhile, continuing unemployment claims stayed elevated at 1.81 million, suggesting many job seekers are taking longer to find new employment.