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May 23, 2022

 

The U.S. economy has faced a series of strong headwinds this spring, but the economic data released this week showed that economic activity was off to a decent start in the second quarter. While inflation isn’t helping consumers feel particularly flush, U.S. retail sales strengthen despite wilting confidence in April. Data on housing starts, home sales and homebuilder sentiment, on the other hand, showed tentative signs of cooling. Purchase applications fell 12% from the week prior, as prospective homebuyers have been put off by higher rates and deteriorating housing affordability. Furthermore, general uncertainty about the near-term economic outlook, as well as recent stock market volatility, may have caused some households to delay their home search. While the latest employment numbers show that California and the U.S. are still marching on solid footing in April, the terrain might be a bit rocky in the upcoming months.

Rising interest rates and climbing home prices moderate California home sales as statewide median price sets another peak. Sales of existing single-family homes in April were slightly below the month prior, in line with the month-to-month drop from March to April historically. However, the year-over-year drop in sales of 7.4% in April was the biggest decline in the last four months and sales at the national level in April also represented the third consecutive month of yearly decline. Moreover, April pending sales suggest that a more substantial decline is likely to come in May. The year-over-year decline in pending sales implies that we could see a drop of 15% or more in closed sales in California in May, when compared to the same month of last year. Meanwhile, the statewide median price could also set another record high in May, which when combined with higher interest rates, could hinder market demand further in the months to come.

Builder confidence hits lowest level since June 2020. A decline in buyer demand amid rising interest rates, increases in materials costs and home price growth has led builder confidence to drop 8 points to 69 in May, according to the National Association of Home Builders (NAHB).  The steep drop in builder confidence in May represents the fifth consecutive month of decline as the housing market continues to face growing challenges. Their lack of confidence is beginning to show in housing starts, which slowed its pace to 1.724 million annual rate in April, a dip of 0.2% from the revised numbers in March. Building permits also dropped from the prior month at a 3.2% clip after revision.

Weekly mortgage demand from homebuyers tumbles, as higher interest rates curb sales. Despite the average 30-year fixed-rate mortgage interest rate dipping slightly to 5.25% from the week prior according to Freddie Mac weekly survey, the mortgage payment for a median-priced home in California continued to rise and was 37% more expensive than the same time of last year. Consequently, overall mortgage applications decreased 11% from one week earlier, while purchase applications dropped 15% from the same week of last year, according to the Mortgage Bankers Association (MBA).

California’s job growth moderates in April, as unemployment rate dips to 4.6%. California employers added 41,400 nonfarm payroll jobs to the economy according to the California Employment Development Department (EDD). The golden state has now regained more than 91% of the nonfarm jobs lost during the first two months of the pandemic and April was the 14th of the last 15 months with a month-over-month gain in nonfarm jobs. California had the largest absolute year-over-year seasonally-adjusted job increase in the nation and accounted for 9.7% of the U.S. total nonfarm jobs gained.

Retail sales climb in April as consumers continue to spend despite high levels of inflation. Americans continued to pump money into the U.S. economy in April, as retail sales showed an increase both on a month-to-month and year-over-year basis amidst high inflation eating away at their purchasing power. Though the smallest in the last four months, retail sales in April were up 0.9% from March and 8.2% from last year showing consumers’ resilience to the growing challenges they continue facing in the current economy.  Retail sales figures, however, are not inflation adjusted. Accounted for price growth adjustment, real retail sales were down 4.2% from last April.

Weekly Infographic for Week Ending 2022-05-15

 


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