Welcome to the latest edition of The Full Measure, where we analyze the latest developments in the housing market and their impact on real estate appraisers.
Spring typically brings momentum to the housing market, but this May, the rhythm is unsteady. Builder caution, affordability challenges, and a shifting policy environment are combining to reshape sales activity and price growth. From my vantage point, this market is neither contracting nor accelerating—it is recalibrating.
Following months of gradual shifts, we now see clear evidence that the housing economy is transitioning from post-pandemic extremes toward something more sustainable. That transition, however, is not linear. For real estate appraisers, it’s a season for vigilance: understanding where demand is softening, where affordability is driving activity, and how policy uncertainty is shaping value in ways not always visible in the data.
Builders Pull Back, Even as Sales Tick Up
Builder confidence fell sharply in May, with the NAHB/Wells Fargo Housing Market Index dropping six points to 34—the lowest since November 2023 and a signal of widespread concern about economic conditions, tariffs, and material costs (NAHB).
This dip in sentiment coincides with a 2.1% month-over-month drop in single-family housing starts, which are now 12% lower than they were in April 2024. Meanwhile, total housing units under construction fell to their lowest level since June 2021. And yet, new home sales rose 10.9% in April to a seasonally adjusted annual rate of 743,000, with growth largely concentrated in homes priced under $400,000 (Realtor.com).
This apparent contradiction reveals what’s really driving sales: affordability. Builders offering entry-level homes—especially in the South, where two-thirds of new home sales occurred—are finding willing buyers, despite broader macroeconomic concerns.
Implication for appraisers: Carefully evaluate builder incentives, including rate buydowns and closing cost concessions, which are present in over 60% of builder transactions (NAHB). These can obscure true market value if not accounted for properly in the appraisal process.
Existing Home Market: Inventory Rising, Demand Hesitant
In April, the supply of existing homes reached 1.45 million units, up 20.8% from a year ago, pushing the market to a 4.4-month supply (NAHB). Yet, sales remained subdued at 4.00 million units—a 2% year-over-year decline. First-time buyers made up 34% of transactions, reflecting both opportunity and continued constraints.
What’s limiting movement? Mortgage rates, which climbed to a three-month high of 6.92% in mid-May, contributing to a 5.1% decline in weekly mortgage application volume (National Mortgage Professional). This rate environment keeps many homeowners “locked in” to older, lower-rate loans, contributing to supply stagnation in mid-tier segments.
Implication for appraisers: Market times are lengthening, and sale-to-list ratios are compressing. Appraisers should monitor local absorption rates and days on market metrics, especially in areas with growing resale inventory but sluggish buyer response.
Price Growth Slows: A Welcome Stabilization
National home price growth has slowed to its lowest pace since 2012. The First American Home Price Index showed a year-over-year gain of just 2.0% in April, while NAR reported a median price of $414,000 for existing homes.
New homes were slightly more affordable, with a median sale price of $407,200—down 2% from a year earlier. But price changes are highly regional. Affordable metros like Pittsburgh, Baltimore, and St. Louis showed continued appreciation in the starter tier, while more expensive markets such as Oakland and Tampa experienced year-over-year declines (National Mortgage Professional).
Implication for appraisers: National averages provide context, but local dynamics drive value. Track metro-specific HPI data and focus on price tier segmentation. A starter home in a high-demand, low-supply market may still appreciate, while a luxury home in a softening region may warrant downward adjustment.
Tariffs and Costs Complicate Valuation
Tariff pressures remain a major cost factor in new construction. The NAHB reports that tariffs have added approximately $10,900 to the cost of a typical new home, particularly from lumber and other imported materials (NAHB).
While a 90-day tariff reprieve with China was announced in mid-May, most of the monthly economic data predates that policy shift, and builder confidence has yet to rebound in response. The backlog of unstarted homes—119,000 units—suggests that builders are reluctant to break ground until more clarity emerges.
Implication for appraisers: Understand the status of new construction—completed, under construction, or not yet started—when evaluating comparables. Pricing and risk vary considerably depending on construction stage and builder posture.
Buyers Are Looking—But They’re Selective
Despite high rates and economic uncertainty, buyer interest remains. Home touring activity is up 39% since the start of the year, according to Redfin, but only 25.8% of homes sold above asking in April, down from 29% a year ago.
Buyers are motivated but value-conscious. The average sale-to-list price ratio is now 98.7%, indicating less bidding activity and greater negotiation. Homes are spending more time on the market—29 days on average, up from 26 days last year (NAHB).
Implication for appraisers: Analyze pending sales data and verify seller concessions when reconciling values. Appraisals based solely on closed sales may miss recent softening or negotiation dynamics present in current transactions.
What About the Fed?
The Federal Reserve’s next policy meeting is scheduled for June 17–18, 2025. While early-year speculation included the possibility of a summer rate cut, market sentiment has shifted. According to the CME FedWatch Tool, there is a 71% probability that the Fed will hold the federal funds rate steady at its current range of 4.25%–4.50% during the June meeting.
With inflation still above the Fed’s 2% target and tariff-related costs complicating the outlook, policymakers appear to favor a cautious, “wait-and-see” stance. Rate relief may come—but likely not until the second half of the year.
Implication for appraisers: A persistently high-rate environment means financing pressures are unlikely to ease significantly in the near term. Expect continued selective demand and slower transaction velocity.
Final Takeaways: Staying Grounded
The May 2025 housing market is neither booming nor collapsing—it’s adjusting. Slower price appreciation, higher inventories, and more discerning buyers are creating a more stable, but uneven, environment.
For appraisers, this is a time for diligence, not shortcuts. Ensure adjustments are well-supported, comps are current, and local trends are front and center in your analysis.
Key takeaways for appraisers:
- Monitor concessions and incentives closely.
- Focus on tiered pricing trends within metro markets.
- Watch for supply inflection points, especially as months of inventory approach or exceed 5.5%.
- Use pending sales and local absorption rates to validate comparables in a shifting environment.
- Be aware of macroeconomic developments, especially interest rate policy, as a driver of affordability and demand.
We’ll return next month with post-FOMC insights and a view toward summer market dynamics. Until then, keep measuring the market with precision—and perspective.
Stay up to date with your licensing—work with McKissock and take advantage of our appraisal continuing education courses today!
