With a pause in monthly raises in the Fed Funds rate this month, chances were likely that California home prices would cool, but while the steady decrease in housing prices statewide also paused, few economists are predicting dramatic changes.
But there are some optimistic signs across the economic landscape.
According to US Department of Labor Statistics, the rate of inflation for the Los Angeles-Anaheim-Long Beach region is currently at 3.2%, which is below the national average of 4.0%
And, according to the California Association of Realtors (CAR), sales of existing homes in California have surged nearly 10% monthly and recorded the highest level in eight months in May, after sales dipped back-to-back in March and April.
With mortgage rates at their lowest point in two months in early and mid-April, this might have prompted homebuyers to open April escrows which closed in May, according to a CAR report.
And as has been typical lately, despite the month-to-month gain, home sales continued to decline by double-digits from the same month of last year, mild compared to recent months and it was the lowest yearly decline since June 2022. Sales have declined, through the end of May, on a year-to-date basis by 35.1%.
Fed Chairman Jerome Powell has also noted that they are prepared to raise rates perhaps another 50 bps, this year, to continue to tame stubborn inflation.
After the initial increase in the run-up to the debt ceiling debate, rates have hovered in the high-6% range and remained there in the wake of the Fed’s decision not to raise their target interest rate at their June FOMC meeting.
The weekly Freddie Mac 30-year fixed rate mortgage averaged 6.7% for the week ending June 11, only 2 basis points different from the previous week, and Mortgage News Daily shows average rates at 6.95% , which would be essentially unchanged from the previous week.
Ten-year Treasuries have begun to rise, however, so it is possible that mortgage rates could climb above 7%, said the CAR report.
And with the Fed signaling as many as two more rate hikes this year, sub-6% rates are likely to take longer to appear than many initially expected.
Meanwhile, mortgage purchase applications rose 17% last week, halting six consecutive weekly declines. In addition, noted the CAR report, the year-to-year declines have begun to slow as applications were down 27% from 2022 levels after averaging 35-40% annual declines for most of the past 6 months.
New purchase applications remain relatively depressed, however, both compared to the pandemic highs, as well as much of the pre-pandemic years.
The CAR report concluded that, although the main factor for home ownership in California is still extremely tight inventory, unimpressive buyer demand figures illustrate how rates have impacted purchasing power as well.
