Mortgage Rates Drop Slightly, California Housing Market Heats up, Says CAR Report – Pasadena Now

The 30-year fixed-rate mortgage continued to edge down last week as the bond market settled after several strong economic reports, according to a recent report from The California Association of Realtors (CAR). 

During its May meeting, the Federal Reserve unanimously voted to hold policy rates steady for the sixth consecutive time, leaving the federal funds target rate unchanged at 5.25% to 5.5%.

During the meeting, Chair Jerome Powell admitted that it will likely take longer than anticipated for the Fed to gain enough confidence that the economy is on track toward 2% inflation. 

Powell also reiterated his view that the Fed’s current stance is appropriately restrictive.

According to the CAR report, same-store sales at many fast-food retailers, weaker employment data in the household survey than the monthly employment report, and fewer workers quitting jobs voluntarily suggest that inflationary pressures may finally be hitting households.

At the same time, in spite of all of the volatility in interest rates, California’s housing market has only gotten hotter, said the CAR report, as the homebuying season grows with every competitiveness measure on the rise last week.

California’s housing market is still showing signs that it has more buyers than homes to put them in, said the CAR report. While housing affordability in California kicked off the year with a slight improvement from the prior quarter, it remained below a year-ago level. 

The statewide index for existing single-family homes increased 2 points from Q423 to 17 percent in Q124, said CAR, but declined from the same quarter of last year by three percentage points. 

High prices as a result of tight supply and elevated mortgage rates are keeping borrowing costs near all-time highs, ultimately keeping California affordability near the lowest level in 16 years, said the CAR report. Although the monthly mortgage payment for a median-priced home (including taxes and insurance) dipped 6.5% from Q423, it jumped 10.9% from Q123 as the effective mortgage rate stayed above the year-ago level by 38 basis points (bps).

Very tight labor markets and rising spending in the service sector along with rising shelter costs, account for much of the strong inflation numbers, CAR also stated.

There are early signs that the labor market may have already begun to cool, however, it was reported. The monthly jobs report, which measures filled positions at various employers, came in below expectations for the first time in several months. 

Although the number of new unemployment insurance claims has been fairly steady in California, continuing claims have been rising consistently, said  CAR, which implies that it is taking longer for workers to find new jobs following a separation. 

This could help to ease inflationary pressure if the trend persists, said the report..

The U.S. Census Data also reported that collection for Phase 4.1 of the Household Pulse Survey (HPS) which began on April 2, 2024, is scheduled to continue until July 22, 2024. This latest version of the survey will utilize continuous data collection throughout each month, with data releases scheduled for May 16, June 13, July 11, and August 8, 2024.

The strong GDP growth rate for the first quarter and an increase in the headline inflation numbers sent bond rates rising sharply three weeks ago as markets braced for a potential Fed rate increase at their May meeting, which did not occur, CAR also noted.

However, the recent CAR report noted that an April jobs number that was below expectations—along with some signals that consumers may be losing momentum—have helped 10-year rates stabilize in the 4.5% range in the past week. 

As a result, mortgage rates have inched down slightly, with the Freddie Mac average dipping to 7.09% last week after rising above 7.2%. The daily tracking shows more improvement this week, though progress has been very modest.