The U.S. economy showed signs of distress in February, with consumer confidence plunging at the fastest rate since 2021, federal job cuts surpassing 100,000 roles, and California’s housing sales dropping 10% monthly amid 6.96% mortgage rates. The California Association of Realtors reported the state’s median home price rose 6.3% year-over-year to $838,850, yet January sales fell 1.9% annually—the first decline in eight months.
California, often a bellwether for the national housing market, saw a weak start to 2025 as mortgage rates hovered at elevated levels.
According to CAR, January home sales in the state declined sharply, dropping 10% from December to 254,110 closed transactions. The sales dip marked the lowest level in 13 months and represented the steepest monthly drop in 30 months. Compared to January 2024, sales fell 1.9%, marking the first annual decline in eight months.
The sluggish sales performance coincided with a jump in housing supply. CAR data revealed that active listings saw their largest monthly growth rate in seven years, offering buyers more options but also potentially slowing price growth.
The increase in supply was fueled in part by a slowdown in market activity, said CAR, a signal that high borrowing costs may be suppressing demand even as more properties become available.
Despite this, rent prices showed little sign of a dramatic drop. U.S. single-family home rents grew by 1.8% year over year in December, the lowest pace in four years. Major US cities saw higher-than-average increases, suggesting that affordability pressures remain in key urban markets.
Housing starts nationwide plummeted 9.8% in January, with a year-over-year decline of 0.7%. The slowdown underscored deeper issues, including high interest rates, labor shortages, and rising material costs exacerbated by new tariffs.
Notably, California stood out as an exception to the downturn, said the CAR report. While the rest of the nation saw declines, housing starts in the Western region surged 42.3% month over month, signaling that some areas of the state still have strong demand despite elevated costs.
However, the overall outlook remains uncertain.
The builder sentiment index from the National Association of Home Builders/Wells Fargo fell sharply in February to its lowest level in five months. Developers have grown increasingly concerned about the cost of materials and workforce availability, casting doubt on a significant housing recovery in the near term.
Amid economic uncertainty, U.S. consumer sentiment took a major hit in February, falling nearly 10% from January to its lowest point in 15 months. The University of Michigan’s Consumer Sentiment Index dropped from 71.7 in January to 64.7 in February, reflecting widespread concerns about personal finances and the short-term economic outlook.
The decline was driven largely by inflation fears, as survey respondents indicated expectations for rising prices. The 12-month inflation expectation climbed from 3.3% in January to 4.3% in February, the highest level since November 2023. Worries about potential tariff increases and economic instability have exacerbated consumer unease, creating further obstacles for economic growth in the coming months.
Adding to the economic gloom, thousands of federal jobs were eliminated in early 2025, raising concerns about the broader employment market, and the subsequent effect on the economy.
As Farmonaut.com, an agricultural technology firm which monitors labor and economic figures, noted, “In addition to these layoffs, approximately 75,000 employees have accepted buyouts offered by the administration. This represents about 3% of the 2.3-million person civilian workforce, a significant reduction in the federal government’s human resources.”
Justin Schnitzer, a federal employment attorney, also said in a recent email to forbes.com, “Given December’s lackluster jobs report, the roughly 77,000 federal workers who took a buyout from the Federal government, may have a hard time finding new jobs for those already the private sector, the addition of these workers are typically highly educated, adds extra competition.”
Although the private sector remains relatively stable, the shrinking federal workforce could have ripple effects, reducing consumer spending and contributing to weaker job market growth in the months ahead.
As the U.S. economy moves deeper into 2025, it faces a series of challenges that could hinder growth. The housing market, while seeing a boost in supply, remains constrained by high mortgage rates. Construction activity is sluggish, with builders hesitant to ramp up new projects amid rising costs. Consumers are growing increasingly wary of inflation, and job losses in the federal sector may further dampen economic momentum.
As major companies such as Tesla, McDonalds, Target, and Walmart have suffered recent significant losses, the coming months will be critical in determining whether the U.S. can steer clear of a prolonged downturn. Housing, employment, and consumer confidence will all play pivotal roles in shaping the nation’s economic trajectory in the months ahead.
California’s housing market, in particular, may serve as a key measure of how the country navigates these mounting economic challenges.
