In an encouraging economic note, California home sales bounced back solidly in July as prices moderated, and housing supply continued to grow from last year, according to a new report from the California Association of Realtors (CAR).
The Fed is already showing signs of a policy rate cut in September with additional cuts to follow in the near term, so mortgage rates may moderate further, though slowly, in the next couple quarters, the CAR report added.
Federal Reserve Chair Jerome Powell strongly hinted during his Jackson Hole economic symposium speech last week that a cut is forthcoming.
“The time has come for policy to adjust,” said Powell. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks”
“Assuming that the economy will continue to slow but at a gradual pace, the housing market is expected to see more improvement in the next few months,” the CAR report added.
“The sentiment should improve in coming months,” the CAR report, continued, “as the Fed is expected to cut rates multiple times in the third and fourth quarters, which should help lower interest rates and spur housing demand,”
Home sales in California increased 3.6% from the prior month and were up 4.1% from the same month of last year, and statewide sales climbed to the highest level since February and could rise further if rates continue their downward trend.
The median price at the state level dipped below $900,000 for the first time in four months, said CAR, but still recorded a year-over-year growth of 6.5%.
New active listings also increased from a year ago for the seventh consecutive month, said the report, with at least 41 counties in California adding more for-sale properties than last year. With rates likely to soften further in coming months, housing supply should continue to see year-over-year growth in the third and fourth quarters.
Adding to the overall cautious optimism, sales of newly constructed single-family homes in the U.S. increased by double-digits in July and rose to the highest level since May 2023, according to the latest data from the U.S. Census Bureau and the Department of Housing and Urban Development.
The sales pace of 739,000 units recorded last month exceeded the consensus expectation of 625,000 units, said CAR, and the jump of 10.6% from June’s revised 668,000 units was the sharpest monthly gain since August 2022.
“New home sales also edged up 5.6% from the same month of last year and increased 2.6% on a year-to-date basis compared to the first seven months of 2023. On the supply side, the number of for-sale properties dipped to the lowest level in six months, with new home inventory declining to 462,000 units in July,” said the CAR report.
At the same time, housing affordability in California dipped in the second quarter, with the statewide index for existing single-family homes dropping 3 points quarter-to-quarter to 14% in the second quarter and declining from 12 months ago by 2 percentage points. This moved California’s affordability down to the lowest level in almost 17 years.
Specifically, the monthly mortgage payment for a median-priced home set an all-time high in the second quarter, surging 13.6% from both the prior quarter and from the same quarter a year ago as mortgage rates remained well above the year-ago level. Rates have moderated since July, however, and could soften further if inflation continues to ease in the next few months.
The supply issue remains a factor, as the number of new homes available for sale dropped 1.1% from the prior month, but continued to grow from the same month of last year by 8.2%, said the report.
According to the latest data released by the U.S. Census Bureau, residential construction fell 6.8% from a month ago in the U.S. At a seasonally adjusted annualized rate of 1.24 million units, housing starts were down 16% from last July’s 1.47 million units, said the CAR report.
Last month’s decline in residential construction was due primarily to a slide in single-family starts, which pulled back 14.1% from the prior month and fell 14.8% from the same month of last year. Multifamily starts, on the other hand, registered a back-to-back monthly increase in July, said CAR, but remained down more than 20% from 12 months ago. The expectation of relatively weak home sales was the primary factor for the decline in housing starts in the past couple of months.
According to the National Association of Home Builders/Wells Fargo Housing Market Index, builder confidence dipped in August for the fourth consecutive month. CAR also pointed out that builders ramped up incentives in August with 33% of them cutting prices, the highest share so far this year.
