March 22, 2021
|The economy continues to improve and the public health crisis is slowly inching its way toward the finish line as more Californians receive the vaccine. However, interest rates continue to increase and that has caused the pace of growth in new mortgage applications to cool from the 30% growth that we experienced during much of the second half of 2020. Home sales remain strong and REALTOR® in California remain optimistic, but many economic headwinds remain.
California Home Sales Rise Solidly in February: C.A.R. released it’s official statistics for statewide prices and sales for the month of February last week. Existing, single-family home sales totaled 462,720 in February on a seasonally adjusted annualized rate, up 9.7 percent from February 2020. The statewide median home price was $699,000, up 20.6 percent from February 2020. Year-to-date statewide home sales were up 15.9 percent in February.
Weekly Read on the Housing Market Remains Encouraging: Despite extremely low levels of inventory, home sales remain robust and REALTORS® in California remains relatively optimistic. The market has yet to show the divergence in performance from last year, but we expect the year-to-year comparisons to become more stark as we enter the second half of March and into April and May when home sales were being severely reduced because of the initial shelter in place orders that were issued at the onset of the COVID-19 pandemic.
Coronavirus Deaths Dip Below 100/Day Last Week: The 7-day average for new coronavirus cases in California continued to decline last week, and the number of deaths dipped below 100 per day in raw volume last week for the first time in months. The 7-day trailing average remains above 100 deaths per day, but should follow suit in the coming weeks. However, new cases remain elevated—hovering at more than 3,000 over the past week.
Mortgage Applications Tick Up Slightly: Although they have decelerated markedly since the beginning of the year, the year-to-year growth in new mortgage applications ticked up slightly last week. New purchase applications were 5% higher than the same week during 2020 after slowing to just 1% above last year’s pace. Housing demand appears to be robust heading into the spring homebuying season as we close out the 45th consecutive week of growth in mortgage applications.
California’s Labor Market Trajectory Revised Down: The State recently released its benchmark employment revisions, which showed that the initial impacts of COVID were more severe than initially reported and the subsequent rebound has been more lackluster. In addition, more workers have dropped out of labor force/become discouraged, which makes the improvements in the headline unemployment rate (which was also revised worse) a little less impressive. In addition, we shed jobs in January and December’s jobs gain was revised to a job loss. The economy has still tuned a corner, but this latest report makes clear that we still have a long way to go as well.
Forbearance Numbers Down, but Pace Decelerating: Although the market continues to see fewer and fewer homeowners in forbearance, the improvement is starting to lose momentum. Overall, the percentage of mortgages still in forbearance fell from 5.23% the previous week to 5.20% last week. In addition, portfolio lenders continue to see a rise in forbearance rates suggesting that those customers are not able to benefit as directly from the various options available to borrowers looking to exit forbearance.
Freddie Mac Mortgage Rates Continue Ascent: The typical contract rate for a 30-year mortgage rose above 3% again last week to 3.09%. More worrisome is the 10-year bond rates, which rose to 1.644% last week and will likely lead to additional rate increases for mortgages. In addition, the Fed suggested it may be willing to raise their benchmark interest rate on the basis of improved economic outlooks due to another round of stimulus and hopeful signs on the public health front, which could lead to an uptick in inflation.