Summary of Current Market Trends
The California real estate market has shown signs of recovery and growth despite previous disruptions due to interest rate fluctuations. Here’s a detailed look at the latest data as of July 2024:
•Closed Sales: Averaging 530 per day.
•Pending Sales: Averaging 603 per day.
•New Listings: Averaging 733 per day, indicating a healthy influx of properties entering the market.
REALTORS® Performance Highlights
REALTORS® have experienced a slight mix of positive and negative changes in their activities over the past week:
•Closed Sales: Increased by 3.6%, reflecting a stronger market performance.
•Entered Escrow: Decreased by 1.9%, suggesting a minor dip in transactions reaching the final stages.
•Listed a Property: Increased by 1.7%, showcasing a steady growth in the number of properties being listed.
Future Market Predictions by REALTORS®
Survey results show that REALTORS® have mixed expectations for the upcoming week:
•Sales Expectations: 19.5% believe sales will increase, a drop of 17.9% from previous optimism.
•Price Predictions: 18.6% anticipate price increases, a decline of 20.5%.
•Listings Forecast: 33.9% expect an increase in listings, down by 12.8%.
Detailed Market Analysis
The macroeconomic environment has been supportive of the housing market’s gradual recovery. The Federal Reserve’s ongoing interest rate adjustments and inflation trends have significantly impacted market dynamics. Here’s a more in-depth look:
•Interest Rates: The Federal Reserve’s expected rate cuts have been anticipated to stabilize mortgage rates, potentially encouraging homebuyer activity and increasing demand.
•Home Sales: Although June witnessed a slight decline in home sales, pending sales data suggests a potential rebound in July due to lower mortgage rates and increased buyer confidence.
•Housing Supply: Inventory levels have risen, with active listings up by 36% year-over-year. New listings have also seen consistent growth, indicating a robust supply side.
•Housing Starts: Multifamily housing starts surged by 22% from the previous month, whereas single-family starts continued to decline. This trend may reverse as mortgage rates decrease, boosting single-family construction.
•Labor Market: California’s labor market remains strong, though there are early signs of slowing growth in certain sectors. This could have a stabilizing effect on the housing market, balancing supply and demand.
Complete Data for Reference
Here is the detailed data used in this analysis for those who want to delve deeper:
July 22, 2024 – The latest macroeconomic data has been helpful to California’s housing market, which continue to battle back from the surge in interest rates last year. Home sales did slide modestly in June as interest rates in April and May disrupted the upward trajectory the market has experienced since the end of 2023. However, pending sales suggest that the recent decline in mortgage rates helped demand to begin ticking up over the past few weeks. Fortunately, the recent reduction in rates has been coupled with an increase in supply—both from an uptick in resale inventory as well as a rebound in new construction in the latest data. After last week’s inflation report, homebuyers and homebuilders appear to be slowly regaining their confidence.
Interest rates continue their downward trend: The Federal Reserve is set to meet at the end of July and interest rates have been steadily improving in hope of an early rate cut. Most odds expect the first cut to take place in September of 2024 rather than the upcoming meeting, but Treasury rates have also been improving on signs that inflation is gradually coming down after dipping below 3% year-to-year in June for the first time since prices began to rise in the aftermath of the pandemic. 10-year bonds hit their lowest level since February last week, and the 2-year has also fallen, which helped the ‘yield curve’ to become less inverted in recent weeks. This suggest that the bond market is becoming more optimistic that the Fed may be able to achieve their coveted ‘soft landing,’ but interest rates should continue trending down even if the Fed decides to hold off on any rate cuts in July—albeit with ongoing volatility.
Home sales slipped in June but could bounce-back in July: California home sales pulled back in June as interest rates remained volatile at the end of the second quarter. Sales of existing single-family homes at the state level dipped to 270,200 last month, a decline of 0.8% from 272,410 in May and a drop of 2.7% from 277,690 in June 2023. On a year-to-date basis, home sales have scaled back since the beginning of the year and have now fallen behind last year’s level by 0.5 percent through the first half of the year. Despite rates fluctuating throughout the month of June, newly opened escrow sales appeared to be making some improvement in the past few weeks as average pending sales per transaction-day increased 8% from a year ago. With inflation easing but remaining higher than the Fed’s target, the U.S. central back is still expected to cut rate later this year but at a more moderate pace than previously anticipated. As such, home sales should improve in the second half of the year but at a more gradual pace than what was projected earlier.
Housing supply remains on an upward trend: California unsold inventory index (UII) in June increased from both the prior month and the same month of last year, with active listings up 36.0% on a year-over year basis. Newly listed for-sale properties also increased from a year ago for the sixth consecutive month and the pace of growth remained solid in the past few months. In fact, average new active listing per business day in June continued to increase by double-digits for the fourth straight month since February. With recent economic reports showing promising signs that inflation is cooling in a more sustainable fashion, mortgage rates could moderate in coming months. As such, further improvement in the supply side could be observed in California before the end of the home buying season.
Housing starts improve as multi-family jumps: The U.S. Census Bureau reported a seasonally adjusted annual rate of 1.35 million units of housing starts in June, an increase of 3.0% from May but a decline of 4.4% from June 2023. Last month’s increase in residential construction activity was due primarily to a surge in new multifamily development, as multifamily starts jumped 22.0% from the prior month but remained 23.4% below last year’s level. New apartment units completed, in fact, reached a 50-year high in June, which is good news for renters as rents tend to cool when there is more supply available in the market. Single-family starts, on the other, posted its fourth consecutive decline last month as mortgage rates continue to keep a lid on the building of one-housing units. With the Feds likely to reduce rates at the end of Q3, mortgage rates should come down and single-family constructions are expected to improve in Q3 and Q4.