September 08, 2025 – Latest economic and housing data indicate that the housing market continues to face headwinds in the second half of 2025. Home purchase sentiment declined in August as price expectations weakened, and job concerns rose. The labor market is softening further, with job growth coming in below forecasts and unemployment ticking up. California’s housing market has become the least competitive since 2008 as homebuyers moved to the sideline, with fewer multiple offers and above-asking price sales. Meanwhile, first-time buyers are struggling with affordability as interest rates and monthly payments climb. With rates projected to come down in the next 12 months though, the outlook for the housing market looks slightly more promising than a few weeks ago.

Home Purchase Sentiment Index dips as price outlook weakens: The Home Purchase Sentiment Index (HPSI) released by Fannie Mae edged down in August as market participants attempted to find directions amid economic uncertainty. The decrease of 0.4 points from the prior month pulled the index down to 71.4 and was 0.7 points below the year-ago level by 0.7 points. While consumers who believed that now is a good time to buy climbed to 28% from 23% in the prior month, those who believed that now is a good time to sell pulled back month-over-month by 2 points to 58% and remained 7 points below its 12-month level. The dip in HPSI in August was due primarily to respondents’ outlook on home prices, as the net percent who believed that prices will go up dropped 10 points from the prior month. The share of employed consumers who said that they were concerned about losing their job in the next 12 months also went up to 27, an increase of 3 points from the prior month and an increase of 6 points from the same month last year. Despite an improvement in mortgage rates in recent weeks, housing sentiment could continue to fluctuate in the months ahead as the outlook of the economy remains murky.

Job market flashes another warning sign: The labor market continues to deteriorate with the U.S. job growth coming in well below expectation in August. Nonfarm payrolls last month increased just 22k from the previous month, sharply below economists’ expectations of 75k polled by the Wall Street Journal. Hirings have been slow this summer, with an average of 29k jobs added in the past three months. While the latest report revised July’s jobs growth by 6k to 79k, revisions also showed a net loss of 13k in June. Most of the jobs gained were in health care, social assistance, leisure and hospitality sectors, while employment in other sectors fell by 53k in August. The weakness in the labor market remains widespread, with the unemployment rate inching up from 4.2% to 4.3%. The labor force participation rate bounced back after dipping three months in a row, and the slow growth in labor supply has helped wages increase at a solid pace in recent months. With the August report showing further signs of weakness in the labor market, the Federal Reserve could begin cutting the fed funds rate in mid-September and will likely reduce the rates again once or twice before the end of the year.

California housing market is the least competitive since 2008: With demand slowing in the first half of the year and housing supply bouncing back to pre-pandemic levels, market competition has cooled off in California. According to the C.A.R. 2025 Annual Housing Market Survey conducted in the second quarter, the share of home sales with multiple offers declined for the second straight year to 42.6%, the lowest level since 2008. The average number of offers received per transaction dropped to 3.7, the smallest in the past six years. The number of properties sold with an above-asking price dipped for the fourth straight year, with the share to total sales dropping from 34.3% in 2024 to 27.9% in 2025. While the share remained above the long-run average of 24%, it was the lowest level since 2019. However, with mortgage rates sliding down to the lowest level since October 2024, market competition could pick back up in Q4 if housing demand begins to turn around in the coming months.

First-time buyers’ share dropped to the lowest level in six years: Elevated interest rates remain a challenge for first-time buyers in establishing homeownership in 2025, as high costs of borrowing continue to present a huge financial barrier for them this year, according to latest results from the C.A.R.’s 2025 Annual Housing Market Survey. The share of homes sold to first-time buyers declined from 36.9% in 2024 to 32.1% in 2025, reaching the lowest level since 2019. Buying a house is getting more difficult financially for first-time buyers as monthly mortgage payment continues to rise, with the median surging 16.2% from $3,288 in 2024 to $3,822 in 2025. While the median downpayment for California entry-level buyers dipped slightly by 4.6% from last year’s $78,656 to $75,000 in 2025, it remained more than double the $35,500 median recorded in 2019. With interest rates projected to come down in the next 12 months, housing affordability for first-time buyers should improve in 2026.

Residential construction spending bounces back after six months of decline: U.S. construction spending extended its decline in July as high interest rates and concerns about the economy’s wellbeing continued to suppress construction activity. According to the latest Commerce Department’s monthly report, total outlays dipped 0.1% month-over-month in July and fell 2.8% year-over-year from July 2024. Private residential construction spending, on the other hand, inched up 0.1% from the prior month after slowing down for six straight months, but recorded a 5.1% decline from the same month of last year. Both single-family (-2.1%) and multifamily (-9.4%) remained on a declining trend from their year-ago levels. Despite a monthly increase in residential spending in July for the first time in seven months, the downdraft in home building activity may not be over yet, as low numbers of permits in recent months suggest that builders are holding back and may continue to do so until there is more clarity on the health of the economy and the condition of the housing market.

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