Weekend Talking Points - 'Cold Case'

It’s the high season for moving house, but transaction volumes, home price growth and competition levels have been cooler than usual for this time of year. Mortgage rates are a big part of it; economic uncertainty is another factor.

Case-Shiller for March 2025. The unadjusted national index rose 0.8% month-over-month, but the seasonally-adjusted index fell 0.3% MoM, the first decline since January 2023. Price growth has been slowing, resulting in YoY growth dropping to 3.4%. [S&P Dow Jones]

TP: It’s normal for home prices to have big moves upwards in March. But in 2025, that upswing has been less pronounced than usual. [Much more on this later.]

New home sales rebounded. In April 2024, builders sold 743,000 new homes (on an annualized basis), up 10.9% MoM and 3.3% YoY. The monthly growth was flattered by a big downward revision to the previous month’s data, but that doesn’t take away from the fact that this was the fastest pace of sales we’ve seen since February 2022! [Census Bureau]

The latest from Tarifflandia. Over the weekend, President Trump agreed to delay the implementation of 50% tariffs on the European Union until July 9. According to President Trump, this delay was at the specific request of European Commission President Ursula von der Layden, who said publicly that “Europe is ready to advance [trade] talks swiftly and decisively.”

TP: You probably don’t need me to tell you how stock markets reacted to this news on Monday.

A big dip in pending sales. In April, pending sales dropped 6.3% MoM to an index level of 71.3 (-2.5% YoY). Even the non-seasonally adjusted number fell 3.6% MoM (at this time of year, the NSA index should ALWAYS be rising). Do keep in mind, however, that pending sales had risen 5.5% MoM the month prior, and that the “Liberation Day” tariffs were announced on April 2. [NAR]

TP: As a reminder, the Pending Home Sales Index (PHSI) is designed to be a leading indicator of existing home sales. According to my analysis, this latest PHSI reading of 71.3 suggests that existing home sales for May will drop back to near (or just below) 4 million units SAAR.

Why Case-Shiller’s SA index is important

When I write about the Case-Shiller numbers, I usually reference the seasonally-adjusted (SA) index. That’s because there are clear and predictable seasonal patterns to home prices: they tend to accelerate upward in the spring, decelerate in late summer, and go slightly backwards in winter. You can clearly see the seasonal oscillations in the chart below (well, apart from during COVID).

These seasonal patterns mean that the unadjusted (or raw) index can give you a mistaken impression of what’s actually happening. Here are the month-over-month growth figures for the unadjusted index in March.

Case-Shiller Unadjusted Index for March
3/25: +0.8% MoM
3/24: +1.3% MoM
3/23: +1.3% MoM
3/22: +2.7% MoM (COVID affected)
3/21: +2.1% MoM (COVID affected)
3/20: +1.0% MoM
3/19: +0.7% MoM
3/18: +0.8% MoM
3/17: +0.8% MoM

Look at 2023 and 2024. In both those years, if you annualized the March growth figure (1.3% X 12), you’d get 15.6% — way off the mark!

But the seasonally-adjusted March growth figures were +0.40% in 2023 and +0.25% in 2024. If you annualized those, you’d get 4.8% and 3.0% — much closer to the actual home price growth we saw those years.

Similarly, if you looked at the unadjusted index in December, you would generally see prices flat to down, suggesting that home prices were falling.

That’s why we shouldn’t ignore the SA decrease
The Case-Shiller national SA index fell 0.3% MoM in March 2025. The last time we saw a MoM decrease in the national SA index was January 2023. The raw index, however, rose 0.8% MoM.

Q: So how should we interpret this? Are home prices rising or falling?

A: They are still rising, but by much less than usual for this time of year. The seasonal adjustment factors tend to “tone down” the spring upswing in prices. It’s just that this year, the “toning down” pushed the SA index into negative territory.

Furthermore, 14 of the 20 big city SA indexes also fell MoM in March 2025. As you see in the bar chart below, the slowdown in home price growth has really been broadening over the last few months.

This also explains why we’ve seen such a slowdown in the YoY growth statistics. In January 2025, the SA index was up 4.1% YoY. In March 2025, this had declined to +3.4% YoY.

Mortgage Market

While average 30-year mortgage rates have retreated somewhat from nearly 7.10%, they remain in the (very) high 6s, which certainly doesn’t help with affordability. Unless something changes soon, it’s looking like this will be the third disappointing ‘high season’ in a row.

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%.

• June 18 FOMC Meeting: 98% probability that the policy rate will remain at 4.25–4.50% (no rate cut). This was 95% last week. So basically, no one expects a rate cut in June.
• July 30 FOMC Meeting: 78% probability that the policy rate will remain at 4.25–4.50% (up from 73% last week). 22% probability that rates will be 25 bps below current (implying one 25 bps rate cut at this meeting).
• September 17 FOMC Meeting: 48% probability that rates will be 25 bps below current (implying one 25 bps rate cut on either July 30 or Sept 17, but not both). 11% probability that rates will be 50 bps below current (implying a 25 bps rate cut at both the July 30 and Sept 17 meetings).

They Said It

“At this critical stage of the housing market, it is all about mortgage rates. Despite an increase in housing inventory, we are not seeing higher home sales. Lower mortgage rates are essential to bring home buyers back into the housing market.” — Lawrence Yun, NAR’s Chief Economist

“Looking at the market environment, affordability remained severely constrained, though it did not worsen materially in early 2025 as borrowing costs stabilized. Mortgage rates hovered in the mid-6% range throughout March, keeping monthly payment burdens near multi-decade highs relative to incomes. This continued to weigh on buyer demand, but persistent supply shortages helped counteract the headwinds.

Many existing homeowners remained reluctant to sell and give up low pandemic-era mortgage rates, and new construction activity stayed limited — a combination that kept inventory levels extremely tight. The scarcity of homes for sale offset softer demand and helped support home prices, enabling a broad seasonal uptick despite the challenging affordability backdrop.” — Nicolas Godec, Head of Commodities at S&P Dow Jones.

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