The Housing Market Hasn’t Looked This Soft Since the Fed Was Tightening

Editor's Note: I will be out of the office today for a client visit so there will not be any commentary on Thursday. 

• There were 1.6 million existing homes for sale in May.

• The number of days on the market keeps rising.

• The median year-over-year sales price rose just over 1%.

The broader macro picture is messy, but housing data is moving with purpose…

The year is off to a bumpy start for anyone looking to buy a home. Oil is climbing, the consumer price index is drifting further from the Fed’s 2% target, causing borrowing costs to rise. The shift has made policymakers increasingly uneasy about the pace of inflation growth but they’re trying to be patient. From their vantage point, time is an asset, and they intend to use it. Yet, loan costs are rising as Wall Street sees the potential rate hike.

But while markets obsess over the Fed’s next move, they’re not paying attention to the signals in the housing market. Because demand has cooled. Despite a rebound in home sales last month, Redfin still shows the average home sat on the market for 49 days in May, That’s longer than 2025’s 46 days and the slowest turnover since the early COVID period, when the average was 54. That’s not ambient sound. That’s the signal getting louder.

The National Association of Realtors (“NAR”) is telling a similar story. While existing home sales rose to an annualized pace of 4.17 million in May, they’re still stuck near the low end of a multi‑year range. Meanwhile, inventory’s back at pre‑pandemic levels. More supply paired with softer demand is keeping a lid on prices. And if oil prices start to drop, a cool housing market will give our central bank less to worry about. The ability to leave monetary policy on hold should help support a steady S&P 500 rally as 2026 unfolds.

But don’t take my word for it, let’s look at what the data is telling us…

Each month, NAR publishes its housing indicators. Existing home sales account for 85%–90% of total volume, making them the cleanest read on market health.

• In May, months’ supply increased to 4.5

• That surpassed the recent peak of 4.3.

• It also hit the highest level in the last decade.

Don’t forget, supply should be shrinking as we move into spring. Instead, it’s going up. That’s not what a hot market looks like...

Prices indicate a similar pattern. Realtor.com reports the median listing price per square foot was $228 in May.

• That was down 3% year‑over‑year.

• It marked the ninth straight month of annualized declines.

• We haven’t seen a streak like that since mid‑2023.

The shift is hurting sellers’ ability to command a premium.

Sale prices confirm the softness. NAR shows the median price of an existing home sold in May was just over $429,000.

• That was up 1.3% from last year.

• That’s far weaker than typical seasonality going back to 2018.

• It also marks the thirteenth straight month of annualized growth at 2% or less.

We haven’t experienced a stretch like this since mid‑2023. Put simply, the housing market hasn’t looked this soft since the Fed was still hiking…

Bottom line: inventory is behaving exactly as it does in a soft market. It’s keeping a lid on price growth. An improving but still weak job market and a Fed on hold are bringing more inventory to market while keeping would‑be buyers on the sidelines.

Housing carries real weight in the inflation calculus. It accounts for roughly 35% of CPI and about 17% of PCE. When home prices cool, rental pricing power tends to follow. That pulls down owners’ equivalent rent, one of the most influential components in both CPI and PCE.

Elevated supply should keep that pressure moving in the right direction. It will help tame inflation over the coming year and improve the chances for added rate cuts next year. That easing cushion remains a quiet tailwind for a steady S&P 500 rally as the year progresses.

Five Stories Moving the Market:

Mediation efforts between the U.S. and Iran to strike a deal remain intense, according to officials; talks between the two sides, led by mediators from Pakistan, are said to be ongoing – Bloomberg. (Why you should care – negotiations are expected to continue throughout this week)

The U.S. launched strikes on Iran in retaliation for the downing of a U.S. Apache helicopter near the Strait of Hormuz, according to U.S. Central Command; the strikes, which the military said were carried out in self-defense, were directed by President Trump – WSJ. (Why you should care – the White House said the strikes were in proportion to Iran’s aggression)

Kuwait's oil inventories have declined sharply as a result of two Very ​Large Crude Carriers which exported crude ‌through the Strait of Hormuz with their AIS transponders switched off, according to a note from ​data provider Kpler; 4 million barrels are said to be offered to refiners in at least China and South Korea – Reuters. (Why you should care – the data points to the fact the oil supplies are increasingly making their way out of the Persian Gulf and back onto the open market)

Super Micro Computer plans to raise $7 billion through a package of equity offerings to purchase the components needed to fulfill customers’ orders for the company’s artificial intelligence servers; the deal will consist of $5 billion in underwritten offerings and $2 billion in an at-the-market program, which would involve Super Micro selling shares directly into the open market from time to time – Bloomberg. (Why you should care – while an equity raise is better than being saddled with long-term interest payments, it’s likely to stoke speculation of other companies doing the same)

Anthropic is releasing a next-generation “Mythos-class” model to the general public with guardrails that remove dangerous capabilities related to areas such as cybersecurity and biological research; called Claude Fable 5, the large language model will mostly let users query Mythos, which the company previously deemed was too dangerous for general release – WSJ. (Why you should care – cybersecurity experts have said Mythos is producing a mountain of software security bugs)

Economic Calendar:

Earnings: CHWY, ORCL, OXM

Japan – Machine Tool Orders for May (2 a.m.)

Norway – CPI for May (2 a.m.)

U.S. - MBA Mortgage Applications (7 a.m.)

U.S. – CPI for May (8:30 a.m.)

Bank of Canada Monetary Policy Announcement (9:45 a.m.)

U.S. - Energy Information Administration Crude Oil Inventory Data (10:30 a.m.)

BoC’s Macklem (Governor) Speaks (10:30 a.m.)

Treasury Auctions $39 Billion in 10-Year Notes (1 p.m.)

Treasury Auctions $70 Billion in 5-Year Notes (1 p.m.)

U.S. – Federal Budget Balance for May (2 p.m.)