Market Minute Write-Up – California Association of Realtors

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December 11, 2023 – Despite stronger-than anticipated job growth in November, hiring moderated from earlier this year and the labor market continued to cool. The economy is showing signs of normalization and recent data suggests that inflation is gradually easing. Consumers in general believed that the worst is over for inflation, and their expectation has also come down. As such, the peak for mortgage rates is likely behind us and rates will moderate further as overall price growth continues to slow in 2024. While home buying sentiment remained on a declining trend last month, the dip in rates over the last six weeks should pick the housing market back up in coming months. With home prices typically lower at the start of the year, more side-lined homebuyers could reenter the market to take advantage of lower prices and lower rates. Home sales could see a kick-start at the beginning of 2024 and the market will hopefully carry that momentum throughout the next 12 months.

Consumer sentiment surges and inflation expectations plunge: Lower gas prices and higher equity values prompted consumer sentiment to jump in early December. The index released by the University of Michigan last Friday soared 8.1 points from 61.3 in November to 69.4 in December. The increase was the most since March 2021 and was higher than the consensus expectation of 62.4. The surge was primarily due to the improvement in inflation expectations, as the consumer one-year outlook for inflation rate dropped sharply from 4.5% in November to 3.1% in December. The 1.4 percentage points decline was the largest one-month dip in nearly 22 years. With inflation easing and interest rates dropping to the lowest level in four months, consumer perception of the future economic outlook has also improved. The index of consumer expectations rose sharply from 56.8 in November to 66.4 in December, which could have a positive implication on holiday spending for the final month of the year.


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Job growth holds up as the economy gradually slows down: The November jobs report came in stronger than expected, with employers adding a seasonally adjusted 199k jobs last month. The increase was due partly to the end of strikes in the entertainment and the auto industries. The unemployment rate fell from 3.9% in October to 3.7% in November, as the labor force participation pushed higher to 62.3%. Despite the November jobs report coming in more favorable than anticipated, the labor market continued to show signs of cooling. As mentioned in a previous report, retailers recorded the smallest annual increase in three years in October, the month when seasonal hiring begins to pick up. The underwhelming continued in November with retail employment declining 38k last month. While nonfarm payroll continued to register a solid 3-month average of 204k between September and November, it is much slower than the 300k plus average recorded at the same time last year.

Mortgage rates at four-month low: Mortgage rates dropped again for the sixth straight week as soft economic data continued to suggest inflation easing, albeit slowly, as the year comes to an end. The average 30-year fixed rate mortgage reported by Freddie Mac last week dropped another 19 basis points (bps) from the prior week and has declined 76 bps cumulatively since it peaked in late October. With the latest jobs report suggesting a normalizing labor market that is softening but is still solid, rates potentially could see some volatility this week with the November Consumer Price Index (CPI) release on Tuesday and the Fed’s announcement on their next rate hike move on Wednesday.

Home purchase sentiment sets new low: Consumers remained pessimistic about the housing market conditions, despite home prices softening and interest rates declining more than 70 bps from the recent peak. The share of consumers who said that it was a good time to buy reached a new survey low at 14%, according to the latest Fannie Mae national housing survey. Given that the survey responses were collected between November 1 and November 16, the sharp decline in rates in the past six weeks might not have enough time to elevate buyers’ spirit last month but will hopefully improve consumers’ optimism in December. Consumers were more positive on home selling, with 60% in November said that it was a good time to sell, a dip from 63% in October but an increase from 54% recorded in November 2022. While many survey respondents continued to believe that mortgage rates will either go up or stay the same in the next 12 months, 22% said that mortgage rates will go down in the same time frame, the highest level in at least the last three years.

Homeowner equity bounces back in Q3: Homeowner equity increased on an annual basis in Q3 2023 after dipping slightly in the first two quarters of the year, according to the latest CoreLogic Homeowner Equity Insights. Homeowners with mortgages in the U.S. have seen an aggregated increase of $1.1 trillion in equity since the Q3 2022, a jump of 6.8% year-over-year. Mortgaged residential properties with negative equity declined 7.7% from Q2 2023 and 8% from Q3 2023. Roughly 2%, or 1.1 million, of all mortgaged properties were underwater, which was significantly below the peak of 26% observed in Q4 2009. On average, U.S. homeowners with mortgages gained $20,000 in equity last quarter compared to a year ago. California had the second largest gain of all states, with an average homeowner equity increase of $51,000 year-over-year in Q3 2023. The Golden State had a share of homes with negative equity at 0.6% in Q3 2023 and was the state with the smallest share reported by CoreLogic.

Note: The weekly market minute report is updated every Monday by 6:00 PM PST.


 

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