California’s housing market continues to battle back from the surge in interest rates last year. Though sales dipped in June as interest rates in April and May rose, pending sales could mean that the recent decline in mortgage rates helped demand to rise again over the past few weeks, according to a report from the California Realtors Association (CAR).
“With recent economic reports showing promising signs that inflation is cooling in a more sustainable fashion, mortgage rates could moderate in coming months,” said the report, observing that, “As such, further improvement in the supply side could be observed in California before the end of the home buying season.”
The economy, which continues to outperform its global peers despite hefty rate hikes from the Fed in 2022 and 2023, remains supported by a resilient labor market even as the unemployment rate has risen to a 2-1/2-year high of 4.1%, as Reuters noted Wednesday.
“The economic expansion is tracking the Goldilocks outlook, which is slower growth and a lower rate of inflation,” Brian Bethune, an economics professor at Boston College, told Reuters. “Consumer spending is keeping things in motion.”
The recent reduction in rates has been assisted by an increase in supply—both from an uptick in resale inventory as well as a rebound in new construction in the latest data, said the CAR report.
Homebuyers and homebuilders appear to be slowly regaining their confidence, after last week’s inflation report, CAR noted.
While all 100 economists in a July 17-23 Reuters poll said the Fed will keep rates unchanged on July 31, more than 80% – 82 of 100 – forecast the first 25-basis-point cut would come in September, pushing the federal funds rate to the 5.00%-5.25% range. That was a stronger majority compared to the nearly two-thirds who said so last month, said Reuters.
The CAR report also noted that 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. suggesting that the bond market is more optimistic that the Fed may be able to achieve their coveted ‘soft landing.”
Interest rates should continue trending down even if the Fed decides to hold off on any rate cuts in July—albeit with ongoing volatility, the report added.
According to the CAR report, 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, CAR also noted.
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.
The report also pointed out that with inflation easing but remaining higher than the Fed’s target, the U.S. central bank is still expected to cut rates later this year “but at a more moderate pace than previously anticipated.”
California unsold inventory index (UII) in June also 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, said the CAR report.
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.
