Housing Mixed, Fed Divided on Next Steps

April saw a slowdown in single-family housing construction, even as signed contracts for existing homes rose for a third straight month and beat expectations. Meanwhile, the Federal Reserve’s April meeting minutes highlighted disagreement among policymakers over the path forward. Here are the key takeaways.

·      Single-Family Construction Cools

·      Builder Sentiment Inches Higher

·      Pending Home Sales Keep Climbing

·      Fed Minutes Highlight Policy Divide

·      Pulse Check: Unemployment Claims

Single-Family Construction Cools

Housing starts fell nearly 3% from March to April, with most of the decline driven by a pullback in single-family construction. Building permits, a key indicator of future building activity, rose 5.8%, led primarily by multi-family projects as single-family permits declined.

What’s the bottom line? Overall, the data suggests builders are taking a more cautious approach amid ongoing economic and geopolitical uncertainty.

Builder Sentiment Inches Higher

Home builder confidence ticked up in May, rising three points to 37. While still below the 50 mark that signals expansion, the index showed modest gains in current sales, future expectations, and buyer traffic.

What’s the bottom line? Higher mortgage rates, rising gas prices, and broader economic uncertainty continue to weigh on demand, according to National Association of Home Builders Chairman Bill Owens. However, potential policy efforts aimed at boosting housing supply could help support sentiment going forward.

Pending Home Sales Keep Climbing

Pending home sales, a key measure of signed contracts on existing homes, increased 1.4% from March to April, beating expectations and marking the third consecutive monthly gain. Sales activity was also up 3.2% compared to this time last year. The Northeast and Midwest saw the strongest monthly growth, while activity in the South slowed slightly.

What’s the bottom line? Despite economic uncertainty and higher mortgage rates, buyers are showing “cautious optimism,” according to Lawrence Yun of the National Association of REALTORS®. Yun added that demand could strengthen even more if mortgage rates move closer to the lower levels seen earlier this year.

Fed Minutes Highlight Policy Divide

The latest minutes from the Federal Reserve’s April meeting, where policymakers left the benchmark rate unchanged as expected, revealed a deeper divide among officials. Governor Stephen Miran continued to favor an immediate rate cut, while some participants pushed to remove any easing bias from the Fed’s statement, even beyond the three who formally dissented.

For context, the Fed’s benchmark interest rate (the Fed Funds Rate) influences borrowing costs across the economy, including mortgages, though it doesn’t set them directly.

What’s the bottom line? Overall, a “majority of participants” said rate hikes would be appropriate if inflation remains persistently above 2%. At the same time, several argued rate cuts could be justified if disinflation resumes or the labor market weakens further.

The split underscores the Fed’s ongoing balancing act: inflation remains above target, while signs of cooling in the job market and broader global uncertainty keep policymakers cautious.

Pulse Check: Unemployment Claims

New unemployment claims remained relatively low at 209,000, though the figure may not tell the full story of labor market stress. Some workers who lose jobs may be turning to freelance or gig work instead of applying for unemployment benefits.

At the same time, continuing unemployment claims held at an elevated 1.78 million, a sign that many unemployed workers are still taking longer to land new jobs.