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January 21, 2021

Although the housing market in California is finally seeing some seasonal slowing that is typical during the winter, the pace of home sales remains strong relative to the same period in 2020. Interest rates rose from their all-time low levels last week, and though that has yet to diminish buyer demand, the pace of growth has begun to cool recently. In addition, broader economic data has slowed as the pandemic remains front and center. Stepping back, the market is expected to remain strong in 2021 as the economy starts to open back up and rates remain relatively low by historical standards—recent increases notwithstanding.

2021 Home Sales Strong in First 2 Weeks: In absolute terms, home sales were down last week by nearly 15% from the week before, and have noticeably downshifted since mid-December. However, comparing to the same point last year reveals that this slowdown is typical for the beginning of a year and that home sales are off to a stronger start than they were in 2020. In fact, the week ending January 16th was the 18th consecutive week where home sales were up by more than 10% from the same point the previous year.

Pending Sales Poised to Resume Upward Trend: Pending sales rose again last week in the Bay Area, Southern California, and the Central Valley. This is the second consecutive week of growth for each of these regions and on a monthly basis, growth has nearly returned to positive territory in every part of the state. As a result, growth in closed sales for the remainder of January and the first half of February are expected to remain in the double-digits.

REALTORS® Open for Business Again in Earnest: After a modest slowdown in reported activity during the first weeks of the year, the weekly survey of California REALTORS® showed that business activity picked up across the board last week. More agents reported taking on listing appointments, listing a property, and entering escrow. And although fewer members reported closing a transaction last week, which was consistent with the transactional data from the MLS, REALTORS® were more optimistic about sales, prices, and listings going forward.

Interest Rates Rise and May Rise More, but not Much More: After falling back to an all-time low of 2.65% the previous week, mortgage rates rose to 2.79% last week. That marks a significant increase, and if the 10-year treasury (which has risen nearly 60 basis points in the past 6 months) is any guide, and it typically is, mortgage rates could rise by as much as 30-40 more basis points. However, that would still leave rates near 3.1%-3.2%, which would still be incredibly attractive to homebuyers—especially relative to historical norms.

Buyer Demand Rising, But At a Slower Pace: After growing by at least 20% on a year to year basis for 13 of the previous 15 weeks, the expansion of new mortgage purchase applications has slowed in 2021. Last week was the 3rd consecutive week of sub-20% growth even though more buyers sought mortgages than the same time last year. Requests for private showings in California are following a similar trend with ShowingTime.com’s index up this week, but by just 13% rather than the high-double- and triple-digit growth from late last year. This is consistent with the current CAR forecast of ongoing growth for 2021, but at a slower pace than we enjoyed during the second half of 2020 as the initial effects of ultra-low interest rates and pent-up demand begin to subside.

Large Numbers of Californians Still Losing Jobs: More than 200,000 workers filed initial unemployment claims in California last week for either traditional or pandemic unemployment assistance. This is the 5th of the past 6 weeks where more than 200,000 individuals filed a new unemployment claim. This continues to create financial distress for many families across the state and will likely continue to detract from a more robust recovery on the public health crisis is behind us as we work to repair the effects.

 
 
 
 

Weekly Data 2021-01-16

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