June brought two significant developments that will shape the rate and inflation outlook for the rest of the year. The Federal Reserve, now under new chair Kevin Warsh, sent its clearest hawkish signal yet at its June 17 meeting, putting a rate hike on the table by fall. And the U.S. and Iran signed a memorandum of understanding to end their conflict and reopen the Strait of Hormuz, with technical talks now under way in Switzerland. How both of those stories resolve over the next 60 days matters more for Berkeley buyers and sellers than any single month of local data. Here is what the numbers show, and what I am seeing on the ground.
The Economic Backdrop
The Consumer Price Index for May came in at 4.2% year-over-year, the highest reading since April 2023 and a jump of 0.4 percentage points from April’s 3.8%. The monthly increase was 0.5% on a seasonally adjusted basis. Energy drove more than 60% of the headline gain, with gasoline prices up 7% on the month and 40.5% compared to a year ago, a direct consequence of the disruption to shipping through the Strait of Hormuz since the conflict with Iran began in late February. Shelter costs rose 0.3% for the month and are up 3.4% over the year. The more closely watched core CPI, which strips out food and energy, rose just 0.2% for the month and 2.9% year-over-year, and core goods prices actually declined in May for the first time in over a year. That distinction is important because what may look alarming at the headline level is largely a fuel-price story, not a broad-based inflationary spiral.
There is a reason for optimism on that front, though the situation remains fluid. On June 17, Trump and Iranian President Pezeshkian signed a memorandum of understanding to end the conflict and reopen the Strait of Hormuz to commercial shipping toll-free for 60 days. Trump signed at the Palace of Versailles following the G7 summit in France. Commercial vessel crossings reached 25 on June 18, the highest daily count since mid-April, and Iran’s Persian Gulf Strait Authority confirmed it was waiving transit fees during the negotiating window. Oil prices fell more than $4 a barrel on the announcement. How much of the energy price relief holds will depend on whether the strait stays open and whether this framework survives 60 days of negotiations on all of those open questions.
The May jobs report reinforced that picture. Nonfarm payrolls grew by 172,000, well above the consensus estimate of around 80,000 to 88,000, and prior months were revised up by a combined 93,000 jobs. The unemployment rate held at 4.3%, and average hourly earnings rose 3.4% year-over-year, close enough to core inflation to represent roughly flat real wage growth.
The Producer Price Index for May, released the day after the CPI, added a note of caution: wholesale prices rose 1.1% for the month and 6.5% year-over-year, the highest annual PPI reading since November 2022, driven almost entirely by a 10.7% jump in energy costs at the final demand level. Pipeline inflation bears watching, but the transmission from wholesale fuel prices to core consumer goods has so far been limited.
The Fed and Mortgage Rates
The Federal Open Market Committee concluded its June 16-17 meeting with a unanimous 12-0 vote to hold the federal funds rate at 3.50 to 3.75%, the fourth consecutive hold. The decision itself was expected. What matters more for the mortgage rate outlook is what came with it. This was new chair Kevin Warsh’s first meeting, and the committee dramatically shortened its policy statement to just 130 words, stripping out all language that had previously signaled a bias toward future cuts. The updated dot plot, which shows each official’s projection for where rates should end the year, now shows a median of 3.8%, up from 3.4% projected in March.
Of the 18 officials who submitted projections (Warsh declined to submit his own, in keeping with his long-stated skepticism of forward guidance), nine now expect at least one rate hike before year-end, six of those favor at least two quarter-point increases, and only one projects a cut. The Fed’s inflation forecast for 2026 was revised sharply higher, to 3.6% headline and 3.3% core, against March projections of 2.7% for both. In the press conference, Warsh stated the committee will deliver price stability and sees no reason to revisit the 2% inflation target. Markets moved in a hawkish direction following the announcement, with traders now pricing in a possible hike as early as October.
For mortgage rates, Freddie Mac’s June 11 Primary Mortgage Market Survey puts the 30-year fixed-rate mortgage at 6.52% and the 15-year fixed at 5.84%. Both remain below where they were a year ago: the 30-year averaged 6.84% in mid-June 2025. The hawkish June 17 Fed statement and dot plot will almost certainly push rates higher in the near term as the market reprices the possibility of a hike rather than a cut this year.
For a buyer purchasing a $1.4 million home in Berkeley with 20% down, a $1.12 million loan at today’s 6.52% carries a monthly principal and interest payment of roughly $7,090. That same loan at 6.75%, which is plausible if a fall hike materializes, would cost approximately $7,265. Neither scenario is dramatically different from where rates have been over the past year, but buyers who have been waiting for relief should understand the direction of risk has shifted. The case for acting sooner rather than later has strengthened. I run through all of these scenarios with my clients using the mortgage calculator and buyer net sheet on my website.
National and California Housing
The National Association of Realtors’ May existing-home sales report, released June 9, showed a seasonally adjusted annual rate of 4.17 million, up 3.2% month-over-month and year-over-year, the highest sales pace since December. Total inventory rose to 1.55 million units, a 4.5-month supply. The national median price reached $429,300, up 1.3% from a year ago, marking the 35th consecutive month of year-over-year price increases. Freddie Mac’s own chief economist noted that stronger employment momentum is now helping existing home sales, and that buyers appear to be looking past short-term rate fluctuations. The overall picture at the national level is a market that is gradually improving from last year’s sluggishness, though the 4.5 months of supply still sits well below the six months typically associated with a balanced market.
For California, the most recent data from the California Association of Realtors covers April, when closed escrow sales of existing single-family homes rose 3.9% from March and 4.1% year-over-year, the largest annual gain in seven months. The statewide median reached a new record of $914,810 in April. As always, a single California median spans everything from Fresno to Pacific Heights, and it tells you very little about what is happening in the inner East Bay. What is consistent with what I see in Berkeley: the upper end of the market has been particularly active, with homes priced above $2 million statewide posting the largest sales gains.
Berkeley: A Different Market
Berkeley’s May data from Redfin’s MLS records shows a citywide median sale price of approximately $1.5 million across all home types, which reflects the full inventory mix including condominiums. Single-family homes in the flatlands and hills continue to trade at premiums that national and statewide figures cannot capture. Movoto’s May data points to 169 closed sales and a median of 29 days on market, slightly faster than the 31-day median from a year ago. The directional story is consistent with what I have been observing since early spring: well-priced, well-presented homes in the Elmwood, Claremont, and Thousand Oaks neighborhoods are still generating multiple offers within the first two weeks of listing. The market does not have the frenzied energy of 2021, but sellers with realistic pricing and tight preparation are achieving strong results. My own May closing at 1788 San Lorenzo sold 70% over its list price, and that outcome reflected genuine buyer competition rather than a pricing anomaly.
Where I see hesitation is at the upper end of the hills market, where homes above $2.5 million are sitting longer. Insurance continues to be the primary friction. Buyers who want a hills property are factoring California FAIR Plan availability and cost into their analysis before they make any offer, and some are walking away from properties where BESO compliance updates have not been completed. The Berkeley Energy Saving Ordinance came up in nearly every buyer conversation I had this spring. BESO compliance is now firmly in the minds of most informed buyers, and sellers who address it in advance are better positioned for multiple non-contingent offers. The flatlands market, where fire risk is lower and insurance is more readily available, remains the more straightforward place to buy and sell right now.
Guidance for Buyers and Sellers
For buyers, the most useful thing you can do before you write an offer in this market is understand your all-in monthly cost at current rates and price it against your alternative. If you are renting, the opportunity cost calculator on my website lets you run that comparison with real numbers rather than assumptions. Use the buyer net sheet to understand closing costs specific to the Berkeley transfer tax structure so you are not surprised at the finish line. And if you are considering a hills property, I would encourage you to review my replacement cost calculator before you get emotionally attached to any specific address. I can also refer you to insurance brokers who know this landscape well.
For sellers, the data supports moving forward if your property is priced correctly and prepared well. Buyer activity picked up meaningfully in May and has held into June. The critical variable is not the rate environment, it is buyer confidence, and that confidence is higher when a seller has done the work: pest clearances, BESO disclosure, and any updates that may impact insurability. Sellers who cut corners on preparation are spending more time on market and negotiating from a weaker position. Use the seller net sheet to model your net proceeds under different price scenarios so you are going in with clear expectations.
Looking Ahead
The June 17 Fed decision resets the baseline. The committee is no longer signaling patience toward eventual cuts: it is signaling that the next move could be a hike if inflation stays above target. The data releases that matter most from here are the June jobs report on July 2, the June CPI on July 14, and the June PPI on July 15, all of which feed directly into the FOMC meeting on July 28-29.
If inflation begins to moderate, particularly in core services and shelter, the committee may hold through the fall. If it stays at 4% or above, October becomes a live hike decision. The Iran deal is the other major variable. Technical working groups on nuclear issues, sanctions, and strait security are meeting this week following the first round of high-level talks in Switzerland, which concluded June 22 with “encouraging progress” despite Trump’s public threats nearly derailing the Iranian delegation. The 60-day negotiating window runs through mid-August, and the open questions are genuinely hard: Iran’s right to enrich uranium, the disposal of its highly enriched stockpile under IAEA supervision, ballistic missiles (not addressed in the MOU), the future security framework for the strait, and whether Israel will hold to the Lebanon provisions. If the framework holds and shipping returns to pre-war levels through the strait, energy prices could ease significantly and take meaningful pressure off headline inflation. If it unravels, the inflationary picture darkens and the Fed’s hand is forced. For Berkeley buyers and sellers, the practical implication is to plan around current rates rather than anticipated cuts, while acknowledging that the next 60 days could shift that picture considerably in either direction.
If you want to talk through what any of this means for your specific situation, I am always glad to do that. You can reach me at [email protected], at (510) 708-9952, or through my contact page.
