Several economic indicators are showing that the nation’s and California’s economic landscape is steadily improving, although there is still no indication that the Federal Reserve will drop rates before May.
According to recently released minutes of the Federal Open Market Committee (FOMC) from January 30–31, 2024, growth in U.S. real gross domestic product (GDP) was solid in the fourth quarter of 2023, even though down from the third quarter’s strong pace. The summary also noted that labor market conditions continued to be tight but showed further signs of easing.
Consumer price inflation had also declined markedly over the course of the year, though it continued to remain above 2 percent.
The FOMC minutes also noted that labor demand and supply continued to move into better alignment gradually. The average monthly pace of nonfarm payroll employment gains in the fourth quarter was slower than in the third quarter.
The unemployment rate remained at 3.7 percent in December, the same as its third-quarter average but the labor force participation rate moved down, as did the employment-to-population ratio, said the minutes.
As expected, consumer price inflation continued to slow. The price index for total personal consumption expenditures (PCE) increased 2.6 percent over the 12 months ending in December, while core PCE price inflation—not including changes in energy prices and many consumer food prices—was 2.9 percent over the same period.
Meanwhile, the latest market report from the California Association of Realtors (CAR) reported that “California had a good start in 2024 with both housing supply and buyer demand showing signs of improvement in January.
“In general,” said the report, “rates are expected to decline later this year, and available inventory should slowly improve throughout 2024.”
The CAR report said that active listings at the state level dipped again on a year-over-year basis for ten straight months, but the decline for the current month was the smallest. Along with that, said the report, new active listings at the state level increased from a year ago for the first time in 19 months, and the annual increase was the largest since May 2022.
“Potential home sellers could hit the pause button on listing their house in the next few weeks though, as rates climbed back up to a two-month high late last week due to the latest inflation concerns,” the report added.
CAR also reported that the lending environment is expected to be more favorable in 2024, though “the market will likely face headwinds in the coming months as mortgage rates continue to fluctuate.”
Rates will ease again as inflation stabilizes in the second quarter, said CAR, and the market could see more pent-up demand being converted into sales in the spring homebuying season.
January home sales in California also reached the highest level in six months, with the statewide existing single-family home sales registering a year-over-year gain for the first time in 31 months, according to the CAR report.
Pending sales at the state level also increased year-over-year for the first time since May 2021, said the report, signaling the possibility of a back-to-back annual increase in closed sales in February. With rates dropping sharply at the end of last year, many homebuyers on the sidelines reentered the market and pushed sales in the first month of 2024.
However, sales were below the 300,000-unit threshold for the 16th straight month, and will likely remain under that level in the first quarter, the CAR report noted.
At the same time, the statewide median price of existing single-family homes dipped below the $800,000 benchmark for the first time in ten months, said CAR, but continued to record a modest year-over-year gain in January.
Despite mortgage rates rising slightly in the last few weeks, a tight housing supply should keep home prices on an upward trend and those prices should continue to grow moderately from a year ago in the next couple of months, said the CAR report.
