California is finally experiencing some encouraging data on the public health front as new cases have dipped. At the same time, buyer demand remains relatively strong on a year-to-year basis and despite slightly higher rates over the past few weeks, California REALTORS® continue to report strong demand from first-time buyers in particular. There are still many challenges on the horizon including a lack of inventory, rising prices that are eroding housing affordability, and the ongoing restrictions that the economy will continue to face until we can resume more “normal” economic activity, but the housing market in California remains the bright spot on the State’s economic landscape.
Public Health Numbers Finally Moving in Right Directions: After surging during the holidays, the number of new coronavirus cases in California has begun to subside consistently. In addition to a falling number of daily cases, which had risen as high as 52,000 per day by January 9, have since been cut in half. By Sunday, the 7-day average that the state tracks to decide whether to loosen restrictions or not, had dipped below 24,000, and many areas have seen the stay-at-home order lifted.
First-Time Buyers Remain Interested: Our weekly survey of California REALTORS® showed an increased in the percentage of respondents who had a first-time buyer purchase the home in their last transaction. That is the highest percentage since we began asking about first-time buyers in our weekly survey several months ago. As a point of comparison, 38.9% was the share of first-time buyers in 2020, so this would represent an uptick for 2021 if it persists.
Many High-Wage Sectors At or Above Pre-Recession Peak: Although California shed jobs in December, many of California’s high-wage industries are already near, at, or even above their pre-crisis levels. Finance & Insurance as well as Professional, Scientific, & Technical Services, which both pay average wages over $100,000/year, have already recovered any jobs lost while Information and Management, two other high-wage sectors, are just 74,000 jobs below their previous peak. Meanwhile, California still has more than 1.3 million jobs to recover in sectors paying less than $100,00. per year.
Builders Responding to Buyer Demand with More Housing Starts: Driven by a jump in single-family construction, housing starts reach an annualized pace of 1.67 million units in December. That is the fastest pace for new residential construction in 14 years and matches the 15-year high California’s home sales posted during the month. Unfortunately, the residential permits at the state level show California was on track to end the year with fewer than 100,000 units so our supply challenges will persist over the short run.
Interest Rates Dipped But Remain Elevated From All-Time Lows: Interest rates dipped back down to 2.77% last week after rising to 2.79% the previous week according to Freddie Mac. However, rates have come up from their all-time lows of 2.65% two weeks prior and the Mortgage Bankers Association’s measure of interest rates continued to rise to 2.95% last week. 10-year Treasury yields remain at 1.1% so mortgage rates could absorb another 10-20 basis points, but they are not expected to rise much beyond that over the short run.
California Labor Markets End 2020 on a Weak Note: The Employment Development Department released the December 2020 data on Friday, which showed that California shed more than 52,000 jobs last month as the surge in coronavirus cases caused the state to enact tighter restrictions that stifled economic activity. In addition, the unemployment rate increased to 9.0% as the number of unemployed rose by 173,000. Continuing unemployment claims remain high as well, so there are still many households in considerable financial distress.