May 11, 2026 – Latest macro indicators show tentative signs of improvement, with easing inflation pressures, steady job growth, and better affordability offering some encouragement heading into the summer. Still, challenges remain, as elevated interest rates, persistent cost pressures, and geopolitical risks weigh on the outlook in the months ahead. While the housing market appeared to be gaining momentum in the first quarter, uncertainty about the war may have caused both buyers and sellers to stay on the sidelines.

California affordability kicks off the year with a positive note: Housing affordability in California continued to climb and reached the highest level in four years. The statewide Housing Affordability Index (HAI) for existing single-family homes edged up one percentage point (ppt) from Q4 2025 to 22% in Q1 2026 and rose three ppts from its year-ago level. Lower interest rates, slower price growth, and higher household income levels all contributed to the upward trend in housing affordability in Q1 2026. The monthly mortgage payment for a median-priced home—including taxes and insurance—slipped 3.9% from the prior quarter and 6.1% from a year earlier, as the effective mortgage rate dipped to the lowest level in three and a half years. A minimum annual income of $204,800 was required to make the typical monthly payment in Q1 2026, but it was $32,000 lower than the record high reached in Q2 2024. Despite improvements from a year ago, housing affordability remains low and will continue to pose challenges for buyers and sellers in the short term.

U.S. job growth posts second month’s gain, breaking the see-sawing pattern in April: Nonfarm payrolls rose a seasonally adjusted 115k in April, continuing the positive job growth observed in March, and breaking the see-sawing trend that started in May 2025. The second straight month of solid job gains was the first back-to-back increase since May 2025 and the monthly growth exceeded consensus expectations of around 60k. Health care and social assistance were responsible for a large part of the gains, with the sector adding 54k jobs last month. While it is still playing a major role in the increase in payrolls, the reduced reliance on the healthcare sector for the overall job growth is an encouraging sign for the economy. Transportation and warehousing also improved solidly with an increase of 30k jobs, while Information dropped 13k roles. The unemployment rate remained unchanged at 4.3%, which could be a signal that the labor market may have reached a point where only modest job creation is necessary for jobless level to remain steady. Wages remained on the rise, with average hourly earnings up 3.6% from a year ago but the increase came in lower than the estimate of 3.8%. With Americans getting smaller pay raises while energy prices continuing to push inflation up, consumers spending resilience could be tested in the coming months.

New home sales increase suggests demand exists when the price is right: Sales of new single-family houses in March 2026 rose to a seasonally adjusted annual rate of 682k, a jump of 7.4% from February’s 635k and an increase of 3.3% from 660k recorded a year ago. March’s new home sales, which reflect contract signings of newly built homes in that month, were up solidly despite mortgage rates rising over 50 basis points throughout the month. The recent uptick in new housing demand was likely driven by lower prices, which were in turn triggered by builder incentives. The median sales price of new houses sold in March 2026 was $387,400, a 5.3% drop from the previous month’s $409,000 and a decline of 6.2% from its year-ago level of $412,900. The latest monthly median price was, in fact, the lowest level since July 2021. Elevated interest rates and geopolitical uncertainty have exerted downward pressures on prices, resulting in negative price growth in newly built homes in recent months. New houses for sale at the end of March 2026 was 481k, which was 0.4% below the February 2026 estimate of 483k, and was 4.6% below the March 2025 estimate of 504k. Housing supply could fall again in the months ahead as the market heats up during the buying season, but the development of the Middle East conflict could also make a difference.

Short-term inflation expectations up but gas price growth expectations down in April: Inflation expectations at the one-year ahead horizon climbed again for the second consecutive months with the median reaching the highest level in 12 months, according to the New York Fed’s Survey of Consumer Expectations. Survey respondents collectively expected inflation 12 months from now to reach 3.6%, as the situation in Iran remains uncertainty. Median year-ahead gas price growth expectations moderated by 4.3 percentage points in April though after shooting up to the highest level since March 2022 in the prior month. Despite gas prices resuming their rising trend in mid-April after showing some moderations earlier in the month, ongoing negotiation between the U.S. and Iran might have offered hopes to consumers that the situation in the Middle East will be resolved in the short term, and energy prices will come down subsequently. The medium and longer-term inflation expectations also remained unchanged last month, which is another indication that consumers are now seeing the recent uptick in inflation as a temporary shift in price growth that should subside after the next 12 months.

Residential construction ticks up at the end of first quarter: After declining for two straight months, U.S. construction spending bounced back in March, the latest Commerce Department’s report shows. Total outlays were up 0.6% from February and were up 1.6% year-over-year. The increase was primarily due to an improvement in residential construction spending, as single-family climbed 2.7% and multi-family inched up 0.3% on a month-over-month basis. Remodeling remained a bright spot, with spending up 0.9% month-over-month and up 14.3 year-over-year. With building permits showing signs of pulling back in recent months, construction spending could soften in Q2 and Q3 as material costs rise, and interest rates remain elevated. This could mean tighter housing supply in the medium term if the building environment remains unchanged.

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