As we kick off the first week of June, all eyes are on the labor market and its impact on inflation, interest rates, and housing. Here’s what’s coming up this week and a look back at key developments from last week:

This Week’s Economic Highlights:

• Monday: ISM Manufacturing PMI for May and remarks from Fed Chair Jerome Powell

• Tuesday: April JOLTS (Job Openings and Labor Turnover Survey)

• Wednesday: ADP Nonfarm Employment Report for May

• Thursday: Weekly Initial Jobless Claims

• Friday: May Jobs Report, including nonfarm payrolls and the unemployment rate

Recap of Last Week (May 26 - 30, 2025):

• Inflation is easing: The Personal Consumption Expenditures (PCE) index showed a continued move toward the Fed’s 2% inflation target.

• Home prices are still climbing: Case-Shiller reported a 3.4% annual gain, while FHFA noted a 3.7% year-over-year increase.

• Pending home sales fell: April saw a 6.3% drop in contract signings, despite a small increase in inventory.

• GDP decline was revised upward: Q1 GDP was adjusted from -0.3% to -0.2% due to stronger consumer spending and exports.

• Unemployment claims rose: Continuing claims surpassed 1.9 million, a signal that people are taking longer to find new jobs.

Why the Labor Market Still Matters to the Fed

The Federal Reserve has a dual mission: maintain stable prices and ensure maximum employment. While inflation appears to be cooling, Fed officials remain cautious. Their concern? A still-tight labor market that could keep wages high and inflation from fully settling.

Wages are still climbing at an annual pace of about 4%, much higher than the 2-3% range that supports long-term inflation control. Job openings continue to exceed the number of unemployed workers, keeping the pressure on businesses to raise wages. April’s JOLTS data reported about 8 million job openings.

In April alone, personal income rose by $210 billion. Roughly $140 billion of that came from wages and salaries, translating to an annualized growth of 11%. For policymakers, that’s too hot to consider easing up.

Until wage growth comes down and unemployment ticks up slightly, the Fed is unlikely to cut interest rates. They’re watching for:

• A drop in job openings relative to unemployed workers

• Wage growth closer to 2-3%

• A slight rise in unemployment (closer to 4%)

What This Means for Mortgage Rates and Housing

Mortgage rates follow the broader bond market, which responds directly to Fed policy. If and when the Fed lowers rates, we can expect mortgage rates to drop – but not dramatically, and not necessarily right away.

A Fed rate cut of 0.25% could reduce mortgage rates by roughly 0.25% to 0.50%. For a $400,000 home, that might save buyers around $60 to $120 per month. However, if the bond market doesn’t believe the timing is right, those rate cuts might not stick.

Lower rates would help increase affordability, bringing more sidelined buyers back into the market. Even the expectation of a rate drop can encourage buyer activity and improve consumer confidence. For many potential buyers, the psychological relief of “lower rates are coming” can be just as powerful as the rate change itself.

The State of the Housing Market in 2025

Home listings in the U.S. hit a record value of $698 billion in April, up more than 20% year over year. However, $331 billion worth of homes have been sitting for over 60 days. The market is cooling, and the signs of a buyer-friendly environment are growing:

• Inventory: Up 16.7% year over year

• New listings: Increased 8.6%, the strongest March-to-April growth in three years

• Median time on market: Now 40 days, up from 35 a year ago

• Buyer hesitation: Transactions are down, contract cancellations are up

• Sellers outnumber buyers: By nearly half a million nationwide

Despite slower sales, prices haven’t dropped dramatically. The median sale price is still up 1.4% year over year. That said, with more stale inventory on the market and fewer buyers, Redfin predicts home prices could dip about 1% by the end of the year.

If you’re planning to buy, this could be your moment. There’s room to negotiate, listings are staying on the market longer, and interest rates are likely to decline later in the year.

Is the Housing Market Bottom Behind Us?

In January 2023, U.S. home prices hit their recent low. For that to happen again, prices would need to fall another 10.7%. Most economists don’t believe that’s likely. If the worst is already behind us, any price growth from here is likely to be more stable and sustainable.

But if you’re waiting for prices to drop significantly, understand the risk: you might be holding out for a dip that doesn’t come.

Final Thought

With inventory on the rise, wages still strong, and rates expected to soften later this year, this summer could offer real opportunities for both buyers and sellers. Just make sure your realtor can walk you through how all this data applies to your local market – because in real estate, what matters most is what’s happening on your block.