With inflation slowing further in July, homebuyer demand is finally approaching positive territory for the first time since rates began to rise in 2022, according to a recent report by the California Association of Realtors (CAR).
And, according to Redfin, in July 2024, there were 96,377 homes for sale in California, up 23.8% year over year. The number of newly listed homes was 31,622 and up 10.5% year over year. The average months of supply is 2 months.
Along with this news, CAR reported that “mortgage delinquency rates remain very low in California and the percentage of homeowners with significant equity to stave off foreclosure in a worst-case scenario remains remarkably high.”
Market fundamentals are also bolstered by the fact homeowners currently have very attractive mortgage payments, with roughly two-thirds of the state in a 4% rate or lower (90% of which are fixed-rate loans), said the CAR report.
For the second month in a row, said the CAR report, headline inflation was below 3% on a year-to-year basis with July dipping slightly from June, increasing hopes that the Federal Reserve will lower interest rates at their September meeting
But more importantly, core inflation, which excludes certain volatile items, continued its downward trend last month as well, the report noted.
Service sector prices, wages, and housing costs remain stubbornly high, however, the report pointed out, preventing more progress in the Fed’s war against inflation.
While the latest Freddie Mac interest rate for a 30-year fixed-rate mortgage remained below 6.5% for the second week in a row, the figure was released prior to last week’s inflation reading.
Rates have now been below 7% for the past 11 weeks in a row, and the bond market is not indicating any near-term reversal, as 10-year Treasuries remain below 4% currently, said the CAR report.
In addition, the yield curve is less inverted now than it has been since the Fed began raising rates, which suggests that the bond market is becoming more optimistic about both a rate cut in September as well as a soft landing for the economy.
Some economists are divided as to its overall impact, however.
As Reuters noted recently, “The longest and deepest U.S. Treasury yield curve inversion in history, a key bond market signal of an upcoming recession, could be nearing its end.
“While an inverted curve has typically preceded a recession, this time there is debate about the predictive power of the curve, with optimism that the U.S. could escape prolonged economic pain. Some indicators in recent weeks have pointed to a slowdown, but growth remains strong thanks to a resilient labor market,” Reuters noted.
In California, home sales have followed a typical seasonal pattern peaking in the summer as homebuyers close their transactions prior to school resuming in the fall.
This year, said CAR, home sales are beginning to return to lower levels before picking up again next spring. However, when controlling for typical seasonality, homebuyer demand is showing some signs of life. Mortgage applications last week, said CAR, had their smallest decline this year and their second smallest decline since rates began rising in 2022.
And, as CAR noted, ending sales in July responded sharply to the recent reprieve in rates and should translate into a solid homes sales report in August.