The impeller is good. I change it every spring and I had no issues until recently. (Rotation is correct) I took it out and it's like new. Pump bearing is good too. Took the belt off, and it's fine. If I would have a bearing issue, fuel pressure my be off too. I have ITS so I can feel most of the hose at the drive, and it's good. No corrosion is evident at the inner transom plate where the "elbow" is connecting the intake hose. Intake hose is good too. Water flows freely out from the lower unit intake slots, but there may be something inside I can't see. The rest of the hoses are clean, no sand, grass, etc. I'm pretty much stumped on this. I will have to check or replace the thermostat, just trying to avoid it.

The thermostat isn't going to solve the water pressure problem. Can you rig something up to test the pressure at the discharge of the pump? As someone said, the placement of the sensor is key, pressure will be high before the restriction and low after it. Maybe a hose or fresh water flush is sucking air?

Mercruiser lists a factory spec of bare min. water pressure at 20 psi 4800 - 5200 rpms and a max water pressure 60 psi 5200 rpms. both specs from the oil cooler sensor.

So on a non fresh water cooled system like a HP 500 carb motor 60 psi is ok for block water pressure?

IMO no - but it can be a restricted reading to. Pressure is also a form of restriction.

Not knowing how you are monitoring your water pressure - I take it you have fitting(s) into your block drain plug hole(s) with a small diameter water hose connected in those fittings then running to backside of a water pressure gauge mounted in the dash area ??? or did you use an hand held pressure gauge installed into the block ??? - Taking an educated guess here not knowing your set up and how you are reading water pressure.

I am not a fan of the fittings with water hose connection to pressure gauge at the dash set up. The outboard crowd does this as well and they become clogged all the time and a lot display wrong water pressure readings..

I like a water flow meter better as I am trying to come up with a better mouse trap on that side.

just some added info - The HP 525 uses a water pressure sensor that inputs its reading to the PCM - PCM then monitors that reading, then outputs the reading,

No....that is not OK. In a 525, the water pressure is only in the oil cooler, heat exchanger and exhaust. Also, they are reading before the water enters the oil cooler, which is one of the biggest restrictions. So, the heat exchanger and exhaust will not see water pressure that high. The block and heads are fresh water cooled and only have a few psi of pressure.
Eddie