Markets Rebound on Trade Optimism as New Home Sales Rise, Existing Home Sales Fall, and Fed Signals Caution on Hiring

Weekly Economic Review: April 25, 2025

The stock market rebounded strongly, driven by positive progress on trade deals and easing trade tensions with China; new home sales increased more than expected, but exist-ing home sales decreased more than anticipated; the Fed’s Beige Book highlights rising prices and a cautious approach to hiring among employers

The U.S. stock market began the week with a sell-off on Monday, largely due to the President’s threats to fire Fed Chair Powell. However, the market rebounded strongly for the remainder of the week, driven by signs of a de-escalation of the trade war with China, President Trump’s decision not to terminate Fed Chair Powell, reports of tariff deal progress with Japan and South Korea, and strong tech earnings. The S&P 500 increased by 4.6% this week, reducing its year-to-date decline to 6.06%. Similarly, the Nasdaq rose by 6.7% this week, bringing its year-to-date decrease to 10.0%.

The week’s major economic data was centered in housing, starting with a rise in new home sales for March, which exceeded market expectations. New home sales are counted at the signing of a contract, meaning that there is a greater likelihood of a sale falling through prior to closing. The in-crease in new home sales was mainly driven by a surge in the South, the largest home-building region, which rebounded from adverse weather conditions earlier in the year. Additionally, buyers appeared to take advantage of declining mortgage rates (average 30-year fixed rate of 6.65% in March vs. 6.84% in February and 6.96% in January) and may have rushed to purchase before tariffs on building materials raise the cost of new homes. Builders also offered generous incentives to boost demand.

Despite the strong performance in March, the outlook for new homes faces potential downside risks due to weakening consumer confidence and anticipated price increases from tariffs. Accord-ing to the National Association of Home Builders, tariffs on building materials are causing builders to estimate an increase of $10,900 per home, with material prices already on the rise. While sales in the Midwest saw a slight increase, the West and Northeast experienced declines. The supply of new homes for sale reached its highest level since late 2007. The median new home price de-creased both month-over-month and year-over-year.
Existing home sales, which unlike new home sales are counted at the closing of the contract, fell more than anticipated in March, primarily due to high prices and mortgage rates in January and February. The median sales price reached a record high for March, marking the 21st consecutive month of annual price increases. The inventory of unsold existing homes has been rising since December. While tariffs on building materials will directly affect new residential construction, they may also serve to boost demand for existing homes, driving prices higher and making them less affordable.

Let’s examine in more detail the new and existing home sales statistics announced last week.

New Home Sales:According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Develop-ment, new single-family home sales increased by 7.4% in March to an annualized rate of 724,000, after advancing 3.1% to 674,000 (revised down from 676,000) in the prior month. The March head-line figure came in higher than the market expectation of 685,000. Sales improved in the South (ris-ing 13.6% to 483,000) and the Midwest (up 3.0% to 69,000) but declined in the West (-1.4% to 503,000) and the Northeast (-22.2% to 37,000).

On an annual basis, new home sales rose by 6.0% from 683,000 a year ago. The supply of new houses for sale increased to 503,000 in March, representing a supply of 8.3 months at the current sales rate. The median sale price of new houses sold in March was $403,600, a decline from $411,500 (1.9%) month-over-month and $436,400 (7.5%) year-over-year.

Existing Home Sales:According to the National Association of Realtors, sales of existing homes fell by 5.9% in March, reaching an annualized rate of 4.02 million units, down from 4.27 million units in February (revised from 4.26 million). The March figure came in lower than expected. All four major U.S. regions saw declines in March. Year-over-year, sales dropped by 2.4% from 4.12 million units. The median price in the West decreased by 9.4% to $621,200, which is 2.6% higher than a year ago.

The inventory of unsold existing homes rose by 8.1% to 1.33 million in March, still below the pre-pandemic level of 1.9 million but up 19.8% from the previous year. The Months Supply of Inventory (MSI), indicating how long it would take to sell the current inventory at the current sales pace, was 4.0 months in March, up from 3.5 months in February and 3.2 months year-over-year. A four-to-seven-month supply is considered a healthy balance between supply and demand.

In March, first-time homebuyers made up 32% of sales, up from 31% the previous month and un-changed from a year ago. All-cash sales accounted for 26% of purchases, down from 32% in February and 28% a year ago. Homes stayed on the market for an average of 36 days in March, down from 42 days in February but up from 33 days a year ago. Distressed sales (including fore-closures and short sales) represented 3% of sales in March, unchanged from the previous month and up from 2% a year earlier.

On a concluding note,the Federal Reserve released its April 2025 Beige Book, a compilation of interviews and surveys from businesses, economists, market experts, and other sources across the Fed’s 12 regional banks, detailing changes in economic conditions. This qualitative report, published eight times a year (typically before scheduled FOMC meetings), highlights dynamics and emerging trends in the economy that are not readily apparent in available economic data. Fed Chair Powell has previously emphasized the importance of this report in shaping his understanding of economic directions.

The April report indicated that economic activity was largely unchanged compared to February, but uncertainty around international trade policy was widespread. Noteworthy changes in the current report include price and labor market trends. Prices increased as businesses anticipated higher input costs due to tariffs, with many already receiving notices from suppliers about rising costs and planning to pass these increases onto consumers. Many businesses were pausing or slowing hir-ing until there is more clarity on economic conditions, with some even planning layoffs. Wages generally rose at a modest pace. While auto sales increased due to a rush to purchase ahead of tariff-related price hikes, non-auto consumer spending declined. Both leisure and business travel deteriorated due to a drop in international visitors. Commercial real estate activity expanded slight-ly, while loan demand was flat to modestly higher.

This week, prices in the government bond market experienced fluctuations but rose slightly over-all, meaning that rates fell overall. Treasury yields on all maturities decreased slightly. The two, five, and ten-year Treasury yields ended at 3.74%, 3.88%, and 4.29%, respectively, dropping by 7, 7, and 5 basis points compared to last week. Similar to a week ago, the market projects a 50% chance of one 0.25% cut and a 100% chance of three 0.25% cuts in 2025, totaling 0.75%. The first 0.25% cut is expected at the June FOMC meeting with a 70% probability. However, the market foresees two 0.25% cuts (totaling 0.5%) by July, followed by a third cut in October, and potentially a fourth cut in December with a 50/50 chance.

Looking ahead,the market will seek indications of the economy’s direction in the GDP report as well as the personal income and PCE inflation numbers scheduled for Wednesday, and the job creation and un-employment data set to be released next Friday,. Additionally, the earnings reports from four of the Magnificent Seven tech stocks (Amazon, Apple, Meta Platforms, and Microsoft) will provide in-sights into the performance of the technology sector.

Mark Yoon, CFA CPA

EVP & CFO of Commercial Bank of California

Thomas McCullough
EVP of Commercial Bank of California

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