Weekend Talking Points - 'Legends of the Fall'

Happy 4th of July! If you can pull yourself away from the hamburgers and fireworks, we’ve got a very interesting look at home prices vs. inventory across the nation.

1Q 2025 GDP got a lot more negative. First quarter GDP was revised lower, from -0.2% annualized to -0.5% annualized. The downgrade was driven mostly by lower consumer spending, which was revised to +0.5% (from +1.2% previously). US GDP had grown at +2.4% in the previous quarter (4Q 2024). [BEA]

TP: There are three readings of quarterly GDP: ‘advanced’, ‘preliminary’ (1st revision) and ‘final’ (2nd revision). This was the final reading. While the 1Q ended before Trump’s ‘Liberation Day’ tariffs on April 2, a rush to import products in advance of the tariffs created a major drag on GDP because net export (exports minus imports) has been negative for the US for decades.

Pending home sales edge higher (but remain at very low levels). The NAR’s Pending Home Sales Index rose 1.8% month-over-month in May to an index level of 72.6. What does 72.6 mean in the real world? Here’s the best way to think about it: an index level of 100 is consistent with existing home sales of 5.0–5.5 million units. In other words, 72.6 suggests that next month’s existing home sales will come in around 3.9–4.1 million units SAAR. [NAR]

TP: We really need average 30-yr mortgage rates to drop below 6.5% to get this market moving again. Lower home prices in certain markets definitely help, but affordability is driven more by mortgage rates than home prices.

“Core” PCE (inflation) accelerated in May [BEA]. There are two ways to look at this report:

• Negative: +0.2% MoM for “core” PCE was higher than expectations of +0.1% MoM. And because monthly “core” PCE was flat in May 2024, annual “core” PCE accelerated to +2.7% YoY in May 2025 (from +2.6% YoY in April 2025). Are we starting to see the impact of tariffs?
• Positive: 0.2% monthly inflation is still very low inflation. In fact, if you annualize the last 3 months of monthly “Core” PCE, you get +1.6% YoY — way below the Fed’s 2% target

TP: I think the positive viewpoint makes a lot more sense. This report, combined with the final revision to 1Q 2025 GDP (to -0.5% YoY), and the weak ADP numbers (see below) should give Fed members enough evidence to at least consider cutting rates on July 30.

JOLTs report: Another increase in job openings. For the second month in a row, the Job Openings and Labor Turnover Survey showed a rise in total job openings, to 7.8 million. [BLS]

ADP: Private employers shed jobs in June. After very weak jobs growth in May (+37,000), Wall Street economists were expecting a rebound in June (~100,000 estimated). Instead, ADP reported that private employers dropped a net 33,000 jobs. Breaking that down further, the services sector actually lost 66,000 jobs, and small and medium-sized companies lost 62,000 jobs.

TP: This was a shocking report. Jerome Powell and the rest of the FMOC members should take note. But as we all know, a weak ADP report is no guarantee that the big BLS jobs report will be weak as well. Why? Because the BLS report tends to come out strong (and then get revised down later) plus the impact of the birth/death model.

Legends of the (Price) Fall

I’m seeing more and more news stories about home prices “collapsing” in certain markets, so I thought I would do a deep dive on pricing trends using multiple sources. But before I get into the data, it’s important to understand a few things:

• The % change in the median listing price IS NOT the same as home price appreciation/depreciation. That’s because the median listing price can be skewed by the mix of properties that are listed. If more lower-priced homes are being listed, the median listing price will decline, even if home prices are rising on an apples-to-apples basis! This is why we prefer to use more accurate measures of home price appreciation, like the Case-Shiller and FHFA indexes.
• But that doesn’t mean that median listing prices are useless. Especially in larger markets, a consistent downward trend in listing prices tells you that supply exceeds demand at current price levels.
• Listing prices exhibit seasonality. They go up in the spring/summer and decline in the fall/winter. This is driven by weather (especially in northern states) but also by people wanting to complete their moves during school holidays (so that little Billy doesn’t have to switch schools mid-year.)
• Price corrections can be healthy. When you consider how much home prices rose during the pandemic, seeing median listing prices decline in some markets by 10% is hardly a disaster. This is little comfort, of course, for the people who bought homes at the top of the market (and with mortgage rates above 7%).

So Where are We at the National Level?

Home price growth is decelerating at the national level, reflecting rising inventory (particularly in the South, certain Mountain states, and pandemic-era ‘boomtowns’) and ongoing affordability concerns. According to Realtor.com, median listing prices are down YoY in more than 50% of the Top 200 metros, but more accurate measures of home price appreciation (Case-Shiller, FHFA) show around 3% year-over-year growth.

Remember: If home prices are growing 3% at the national level, that means that in some cities prices are declining, while other cities are seeing very strong price growth. The Northwest and Midwest regions have been the strongest price performers; the South and West, the weakest.

Case-Shiller Home Price Indexes
The Case-Shiller national home price index has declined month-over-month for the last two months on a seasonally-adjusted basis (but has continued to rise on a raw basis.) Essentially, home prices are rising by less than you would expect for this time of year.

Realtor.com Residential Listing Database

• In May 2025, 61% of the Top 100 metros had median listings prices that were down year-over-year (May 2025 vs. May 2024), with a median decline of around 2.5%. Looking at the next 100 cities (101–200), 63% had a YoY decline with a median drop of 2.6%.
• The Top 100 cities have 67% of the nation’s active inventory. The Top 200 cities have 82% of the nation’s active inventory.
• The total active inventory for the Top 100 cities in May 2025 was 10% below pre-pandemic levels (May 2019). The total active inventory for the next 100 cities was 7% below pre-pandemic levels.

Don’t Forget About the Fed & Mortgage Rates

Average mortgage rates began moving aggressively upward in early 2022, rising as much as 400 basis points — from 3% to as high as 7%. These moves anticipated the Fed tightening cycle (rate hikes), which began in June 2022 and didn’t stop until August 2023. In many markets across the nation, inventory began rebuilding and home prices peaked in the first half of 2022.

Home Prices vs. Inventory

The dual-axis graphs below track median listing prices (left-hand scale) and active inventory (right-hand scale). Important reference dates are March 2020 (onset of COVID-19 and lockdowns) and early/mid-2022 (Fed begins raising interest rates, bottoming of inventory).

As you will see below, the pricing trends generally make economic sense — they are tied to both the inventory levels and the historical price performance during COVID. Prices skyrocketed during the pandemic as inventory cratered. And now, in cities with inventory levels that are at or above pre-pandemic levels, prices are generally trending down.

Let’s look at a few in detail:

NYC & Jersey City (Household Rank #1)
Realtor.com Residential Listing Database
Price increase since 12/2019: +37%
Price decrease since mid-2022 peak: None
Change in active inventory since May 2019: -47%

A lot of cities in the Northeast and Midwest have graphs that look like this. (See Philadelphia later.) In NYC, inventory never really recovered after the pandemic. The problem isn’t demand, it’s supply. We hope that New York City’s new mayor (whoever that may be) recognizes that increasing supply (rather than attempting to control rents) is a more effective solution longer-term.

Los Angeles (Household Rank #2)
Realtor.com Residential Listing Database
Price increase since 12/2019: +41%
Price decrease since mid-2022 peak: None
Change in active inventory since May 2019: -15%

LA looks like a market that should be seeing more pricing pressure than it is. Active inventory isn’t far from pre-pandemic levels, but prices have been holding steady (accounting for seasonality). The January 2025 LA fires (which destroyed thousands of homes and created thousands of motivated buyers) likely play a role in this.

Chicago (Household Rank #3)
Realtor.com Residential Listing Database
Price increase since 12/2019: +27%
Price decrease since mid-2022 peak: None
Change in active inventory since May 2019: -61%

Looks pretty similar to the New York graph, right? Just with a less dramatic move upward in prices, and a more dramatic drop in inventory. I’d argue that Chicago prices have more room to the upside.

Dallas-Fort Worth (Household Rank #4)
Realtor.com Residential Listing Database
Price increase since 12/2019: +30%
Price decrease since mid-2022 peak: -10%
Change in active inventory since May 2019: +31%

The graphs for Dallas and Houston (just below) are very similar. Prices peaked not long after inventory bottomed, and since then prices have been trending down as inventory rebounded. Active inventory is now one-third higher than it was pre-pandemic!

Houston (Household Rank #5)
Realtor.com Residential Listing Database
Price increase since 12/2019: 24%
Price decrease since mid-2022 peak: -7%
Change in active inventory since May 2019: +12%

Median listing prices in Houston are now up only 24% since end-2019. That’s equivalent to a compound annual growth rate of just 4.0%! While inventory is now above pre-pandemic levels, the rather limited price increases suggests that this market should see relative price stability.

Philadelphia (Household Rank #6)
Realtor.com Residential Listing Database
Price increase since 12/2019: +35%
Price decrease since mid-2022 peak: None
Change in active inventory since May 2019: -47%

As in New York, inventory plunged during the pandemic and never really recovered. Philadelphia’s relative affordability helps too.

Miami (Household Rank #7)
Realtor.com Residential Listing Database
Price increase since 12/2019: +28%
Price decrease since mid-2022 peak: -18%
Change in active inventory since May 2019: +5%

As you’d expect from Economics 101, home prices in Miami really started to ramp up when inventory plunged with the onset of Covid. Prices peaked right after inventory bottomed in 1Q 2025, and prices have been generally trending lower as inventory levels rebounded, eventually exceeding pre-crisis levels.

Atlanta (Household Rank #8)
Realtor.com Residential Listing Database
Price increase since 12/2019: 32%
Price decrease since mid-2022 peak: -7%
Change in active inventory since May 2019: -8%

Atlanta’s active inventory is very close to its pre-pandemic levels. Median listing prices have been drifting lower since their mid-2022 peak, but listing prices are still 32% above December 2019 levels.

Washington D.C./Arlington (Household Rank #9)
Realtor.com Residential Listing Database
Price increase since 12/2019: 34%
Price decrease since mid-2022 peak: None
Change in active inventory since May 2019: -8%

Only lately has there been a real recovery in active inventory in Washington D.C.. So far, prices have held up, but if active inventory moves well above pre-pandemic levels, prices could come under pressure.

Phoenix (Household Rank #10)
Realtor.com Residential Listing Database
Price increase since 12/2019: 38%
Price decrease since mid-2022 peak: -4%
Change in active inventory since May 2019: +28%

Median listing prices in Phoenix have held up surprisingly well considering the rapid rise in active inventory since mid-2023.

Minneapolis (Household Rank #16)
Realtor.com Residential Listing Database
Price increase since 12/2019: 27%
Price decrease since mid-2022 peak: None
Change in active inventory since May 2019: -29%

Minneapolis listing prices did very little between 2018–2022. It was only as pandemic darlings in the South and West started to fade that Midwestern metros like Minneapolis saw home prices surge. Still, with median listing prices up only 27% since end-2019, and inventory down nearly 30%, prices appear pretty well supported.

Tampa (Household Rank #17)
Realtor.com Residential Listing Database
Price increase since 12/2019: 49%
Price decrease since mid-2022 peak: -7%
Change in active inventory since May 2019: +39%

Between end-2019 and mid-2022, median listing prices in Tampa rose an incredible 61%. Since then, prices have drifted 7% lower, albeit with considerable volatility. With active inventory levels that are 39% above pre-pandemic (May 2019) levels, Tampa appears at risk of further price falls.

Austin (Household Rank #26)
Realtor.com Residential Listing Database
Price increase since 12/2019: 50%
Price decrease since mid-2022 peak: -17%
Change in active inventory since May 2019: +71% (!!!)

It’s a very similar story to Miami, but with a much more dramatic run-up in prices during the pandemic, and a much bigger increase in inventory since early 2022. Median listing prices are doing pretty much what you’d expect given the new supply/demand environment.

Las Vegas (Household Rank #31)
Realtor.com Residential Listing Database
Price increase since 12/2019: 52%
Price decrease since mid-2022 peak: -3%
Change in active inventory since May 2019: -7%

Looks a lot like Phoenix, with strong price performance during the pandemic, incredible inventory volatility, and some risk to the downside for prices if active inventory climbs back above pre-pandemic levels.

North Port-Sarasota, FL (Household Rank #53)
Realtor.com Residential Listing Database
Price increase since 12/2019: +33%
Price decrease since mid-2022 peak: -17%
Change in active inventory since May 2019: +36%

North Port-Sarasota listing prices skyrocketed in 2021, climbing 60% as active inventory virtually disappeared. In economic terms, this is a classic ‘supply shock’. Since bottoming in February 2022, however, active inventory has been recovering rapidly, sending median listing prices lower. Today, median listing prices are still 33% above end-2019 levels. That works out to a compound annual growth rate of just 5.3% per annum.

Mortgage Market

Potential buyers got a little bit of relief this last week, with average mortgage rates trending lower on comments from various Fed members (rate cut possible in July) and the much weaker than expected ADP job numbers.

Here’s what the Fed Funds Rate futures market is currently pricing in for rate cuts. Note that the current Fed Funds Rate policy range is 4.25–4.50%.

• July 30 FOMC Meeting: 75% probability that the policy rate will remain at 4.25–4.50% (down from 83% last week). 25% probability that rates will be 25 bps below current (up from 17% last week), which means one 25 bps rate cut.
• September 17 FOMC Meeting: 73% probability that rates will be 25 bps below current (up from 57%). This implies one 25 bps rate cut on either July 30 or Sept 17, but not both. 24% probability that rates will be 50 bps below current (implying a 25 bps rate cut at both the July 30 and Sept 17 meetings).
• October 29 FOMC Meeting: 57% probability that rates will be 50 bps below current (two rate cuts over the course of the next 3 meetings). 17% probability that rates will be 75 bps below current.
• December 10 FOMC Meeting: Roughly 47% probability that rates will be 75 bps below current. So, to sum everything up, the market is pricing in 2–3 rate cuts of 25 bps each before year end. That’s 1 cut more than Fed members are (in general) expecting.

They Said It

“Though layoffs continue to be rare, a hesitancy to hire and a reluctance to replace departing workers led to job losses last month. Still, the slowdown in hiring has yet to disrupt pay growth.” — Nela Richardson, ADP’s Chief Economist

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