Monthly Report: May 2025

United States

Macro-wise, core inflation in the US was in line with forecasts and previous prints, while inflation was slightly softer than expected (0.2% vs. 0.3% expected month-on-month and 2.3% vs. 2.5% expected year-on-year). The producer price index was also lower by 0.5% vs. the 0.2% that was forecasted. Retail sales were higher by 0.1% month-on-month (vs. the -0.1% expected) while GDP was down -0.2% quarter-on-quarter, shallower than the -0.3% which was forecasted. Overall, the macro picture remains supportive in the US without any deterioration in the underlying data, and the impacts of tariffs have yet to materialise. 

Looking into the Housing market, we believe it is unlikely to see any material increase in sales or prices until mortgage rates retreat.  

Existing home sales dropped by 0.5% month-on-month to 4m in April, marking the lowest level since last October and underperforming the expected 0.7% increase. Total housing inventory edged higher by 9% month-on-month. Despite a robust labour market, sales have been relatively weak, emphasising once again the significance of high mortgage rates.

Sales of new homes rallied by 10.9% from the previous month, following the revised 2.6% increase and much beating the -4.7% forecast. This marks the biggest surge since August 2022, taking home sales to their highest levels since early 2022.  

Unsurprisingly, mortgage rates remain persistently high as the base rate from the FED remains constant. The 15-year rate is 11 bps higher month-on-month, while the 30-year rate is 13 bps higher. We are approaching the highest level for mortgage rates in 2025, reflecting the recent rally in back-end yields on Treasuries and the Fed's rate-cut pause. 

United Kingdom

Macro-wise, on the positive side, GDP growth came out higher than expected: 0.7% vs. 0.6% expected quarter-on-quarter, 1.3% vs. 0.9% expected year-on-year, and 0.2% vs. 0.1% expected month-on-month. Retail sales were up 1.2% month-on-month vs. the 0.3% forecast. Additionally, services PMIs were back at 50.2 from a 49 print in April, and retail sales came out 1.2% higher month-on-month, outperforming the 0.3% forecast.

On the other hand, inflation rose to 3.5% year-on-year, compared to the forecasted 3.3%, and unemployment came in 0.1% higher than expected at 4.5%. Manufacturing PMIs also continued their descent to 45.1, as output and new orders continued to contract.

For housing, the Halifax House price index increased by 0.3% month-on-month, beating the -0.1% forecast and reversing the -0.5% drop from last month. On a year-on-year basis, the index is up 3.2% for April and continues exhibiting strength, marking the highest annual growth for 2025. The main difference is that in the UK, the mortgage rates have decreased to below 4%, enabling housing prices to continue rising since September 2024. 

Looking at more short-term factors, however, the Residential Market Survey by RICS showed that the house price balance (the difference between respondents reporting price increases and declines) came out at -3% for April 2025. This is the lowest reading in nine months and likely reflects the end of the lower stamp duty at the end of March, which naturally boosted sales. Having said that, the expectations were for a -5% reduction. 

China 

China’s retail sales and industrial production show decent strength year-on-year, with latest prints of 6.1% and 5.1%, respectively. However, both came out slightly lower than the 6.2% and 5.6% forecasted growth levels. The trade war with the US remains a massive uncertainty for the country’s efforts to reignite growth. The manufacturing sector is forecasted to show PMIs still just below 50, without any signs of expansion. 

China’s home prices continue to decline year-on-year, showing a 4% drop in April and marking the 22nd consecutive month of price depreciation. However, the decline has eased from last month’s -4.5%, showing some positive signs from the country’s efforts to prop up the property market. 

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References

(n.d.). US Treasuries Yield Curve. US Treasuries Yield Curve. https://www.ustreasuryyieldcurve.com/

(n.d.). CME FedWatch Tool. CME Group. https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

(n.d.).Trading Economics. Trading Economics. https://tradingeconomics.com/united-states/nahb-housing-market-index

(n.d.).Goldman Sachs. Goldman Sachs. https://www.goldmansachs.com/

(n.d.).Bloomberg. Bloomberg. https://www.bloomberg.com

(n.d.). FRED. Federal Reserve Economic Data. https://fred.stlouisfed.org/

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