This edition of the Auto Market Weekly Summary includes updates on new vehicle affordability, housing market conditions, and the latest FOMC minutes. The economic backdrop has grown more complicated since our last edition, with the Middle East conflict continuing to negatively impact energy costs and the Fed’s posture shifting decidedly hawkish under newly-sworn-in Chairman Warsh.

Bottom Line Up Front

The Federal Reserve is sending a clear message: The next interest rate move may well be a hike, though labor market risks remain high. The April Fed Open Market Committee (FOMC) meeting minutes revealed most participants signaled that further tightening would be appropriate if inflation remains persistently above 2%. Core Personal Consumption Expenditure (PCE) is now forecast to hover near 3% through 2026, and markets have repriced accordingly, reflecting roughly 25 basis points of tightening by year-end. The Strait of Hormuz disruption and AI-related cost pressures are keeping inflation elevated and making consensus-building at the Fed increasingly difficult for Chairman Warsh.

For consumers, the affordability picture is a study in cross currents. New-vehicle affordability declined modestly in April, but the year-over-year story is more encouraging. Income growth of 4% in the past year has meaningfully outpaced the average transaction price (ATP) gain of 1.8%. That structural improvement provides a real, if modest, cushion heading into what remains a challenging rate environment.

Housing remains the more challenging corner of the affordability picture. Mortgage rates climbed to a seven-week high of 6.56%, builder sentiment sat firmly in pessimistic territory, and single-family starts fell 9% in April as builders contend with rising input costs. The one bright spot? Pending home sales posted their first annual gain in seven months, supported by pent up demand.

Dealers face a challenging environment. The year-over-year affordability improvement is real, and pending home sales suggest the consumer hasn’t fully retreated. But with financing costs likely to stay elevated or move higher, energy prices pressuring household budgets, and a Fed that has signaled near-term relief is unlikely, the tailwinds that defined the spring bounce have faded. The next several weeks will test whether income growth and consumer resilience can carry the summer months.

New-Vehicle Affordability

New-vehicle affordability declined slightly month-over-month in April, as higher prices, higher interest rates, and lower incentives more than offset income gains. Compared to last April, however, the estimated weeks of income required to buy a new vehicle fell by 2.8%, indicating a meaningful easing in affordability pressures over the past year despite the month-over-month softness.

  • The average auto loan rate in April was 9.45%, a decline of 21 basis year over year; rates were higher by 9 basis points from March.
  • The average transaction price (ATP) rose 0.7% month over month, while income rose 0.3%.
  • Compared to April 2025, ATP was higher by 1.8% while income increased 4%, suggesting income growth is outpacing rising ATP increases.
  • The typical monthly payment in April was $757, a 1% increase year over year and an increase of 1.3% from March.
  • The median number of income weeks required to purchase a new vehicle in April rose to 35.2 weeks from 34.9 weeks in March but was down from 36.3 in April 2025. The year-over-year improvement reflects how income growth and lower rates have than offset rising prices over the past twelve months.

Housing

Mortgage rates were at a seven-week high in the latest measure, with builders caught between rising input costs and excess inventory. Pending home sales posted their first annual gain since last summer, though the broader picture remains one of supply adjustment rather than demand recovery. Multifamily starts were the exception, moving higher in April.

  • The National Association of Home Builders (NAHB) Housing Market Index rose 3 points to 37 in May but remains firmly in pessimistic territory. Cost pressures persist: 32% of builders cut prices in May with average discounts of 6%, but rising input costs are limiting their ability to discount further.
  • The Mortgage Banker Association’s (MBA) composite application index fell 2.3%, though activity remains 18.9% above year-ago levels.
  • Mortgage rates climbed again in the week ending May 15, with the 30-year fixed rate rising 10 basis points to 6.56%, its highest level in seven weeks.
  • The share of adjustable-rate mortgage applications rose to 9.6%, as borrowers seek alternatives to elevated fixed rates.
  • Total housing starts declined 2.8% in April, with the drop concentrated in single-family starts, which fell 9%; multifamily starts rose 14.3%, providing some offset.
  • Building permits rose 5.8% overall, though single-family permits declined 2.6%, suggesting the single-family pipeline may continue to soften near-term.
  • Pending home sales rose 1.4% month-over-month in April, with year-over-year growth of 3.2%, marking the first annual gain after seven consecutive months of flat or declining activity.

FOMC Minutes: Hawkish Tone, High Bar for Action

The April FOMC minutes revealed an increasingly hawkish Fed. A majority of participants signaled that policy tightening would likely be appropriate if inflation continues running persistently above 2%, and many favored dropping the easing bias from the post-meeting statement altogether.

  • The April meeting produced four dissents, the most since 1992, split across both hawkish and dovish lines, underscoring how difficult consensus-building will be for newly-sworn-in Chairman Warsh.
  • Elevated energy prices continue to push inflation further from the Fed’s 2% target, with core PCE now forecast to hover near 3% through 2026.
  • Markets have repriced rate expectations accordingly, now reflecting roughly 25 basis points of tightening by year-end.
  • Despite hawkish rhetoric, the bar for an actual hike remains high. Labor market risks remain and small businesses continue to face rising financial pressure.