Market Update

Despite a deteriorating public health situation in the state, the economic data remains surprisingly resilient in July. California had its biggest month for new jobs and more formerly-discouraged workers began their job search, which is encouraging. Encouragingly, the forbearance numbers, thus far, prelude a major foreclosure episode because most of these borrowers have either gotten back to financial health or come to some sort of accommodation with their lenders. The market continues to normalize, but remains incredibly competitive by normal standards. 

Forbearance Exits Remain Encouraging: The number of mortgages in forbearance dipped below 3.5% recently and the data on homeowners getting out of forbearance continue to support the notion that foreclosures will be relatively contained as key programs expire. Thus far from last June through mid-August 2021, roughly 16% of homeowners who have exited forbearance have done so with no loss mitigation or other plan in place. Those number had been expected to rise more sharply, but many recent exits continue to modify existing loans, pay off missed payments, or add missed amounts to the ends of their loans.

California Jobs Number Strong Despite COVID: Even though the overall unemployment rate remained flat at 7.6%, California had its strongest month of job growth since the first quarter. There were 114,000 new jobs created last month—up from 71,000 job created the month before. Importantly, nearly half of the jobs created were in the Leisure and Hospitality sector, which was the most impacted (on a percentage basis) by the COVID-induced shutdown. This marks the largest gain for restaurants, hotels, and entertainment since April, and means that Leisure and Hospitality has now recovered about 60% of the roughly 1 million jobs lost.

California REALTORS® Feeling More Optimistic: After a fairly consistent downtrend which began in late-April, the percentage of agents that reported feeling optimistic about sales, prices, and new listings rose last week. There was also a decline in the percentage of members with a withdrawn offer or a cancelled listing, which suggests a reduction in “Cold Feet” observed in the marketplace last week. Although the recent rise in coronavirus cases have increased the amount of economic uncertainty, public health fears have coincided with an uptick in demand for housing during the crisis, so we will be monitoring upcoming mortgage applications and pending sales closely.

Mortgage Applications Falling for Last 3 Months: Last week, the weekly index of new purchase mortgage applications declined for the 13th consecutive week. The number of new applications was the lowest since the 4th of July week and is consistent with rising buyer fatigue noted in C.A.R.’s monthly Consumer Sentiment Index, which showed the percentage of consumers in California who thought it was a good time to buy a home fell to its lowest level since we began the survey nearly 3 years ago. Fortunately, interest rates remain low and even fell by 1 basis point last week to 2.86%.  

Weekly Data Suggests Further Normalization of Sales: The number of homes sold on the MLS statewide has fallen short of 2020 levels for the past 4 weeks consecutively. Through the end of June, home sales in California had risen on a year to year basis for 53 weeks in a row as buyer demand shrugged off a lack of available homes for sale to reach 15-year highs. Unfortunately, new listings, which had finally been showing some signs of life, have been falling according to their normal seasonal pattern over the past 4 weeks, although those number could be depressed because of a resurgence in the public health numbers. 

California Public Health Situation Deteriorating Rapidly: The 7-day average for new coronavirus cases is currently 14,451, and that is more than 30% higher than the previous 14-day period. Currently, there are more new cases being recorded than there were during the initial shutdown and are nearly halfway to the peak recorded during the winter of 2020-2021.  The positivity rate has come down slightly in recent days, but still hovers near 6% and hospitalizations are quickly approaching 10,000 statewide. The bulk of the new cases are amongst Californians between 18 and 49, but 80% of deaths are still concentrated in those aged 60 and above.