Housing affordability continued to be an issue at the end of last year and will likely remain a challenge for many homebuyers in 2024. With rates expected to decline in the next 12 months, however, recent reports suggest that consumers are beginning to feel more positive about the current housing market conditions, and those on the sidelines could reenter the market if the economy remains healthy and rates continue their downward trend. Preliminary market data collected in the past few weeks also indicates that both sales and listings have been slowly improving since the end of 2023. If this market momentum continues, the California housing market could see an encouraging start for 2024.
Housing affordability remains at 16-year low in the fourth quarter of 2023: Housing affordability in California remained under pressure in the last quarter of 2023, with the statewide index for existing single-family homes remaining unchanged from the previous quarter at 15%. High prices, along with higher mortgage rates, pushed costs of borrowing up a notch at the end of 2023, ultimately keeping California affordability at the lowest level in 16 years for the second consecutive quarter. The monthly mortgage payment for a median-priced home (including taxes and insurance) inched up 0.7% from Q323 and jumped 11.2% from Q422, as the effective mortgage rate moved up 25 basis points (bps) quarter-to-quarter and increased 59 bps from a year ago to a 23-year high of 7.39% in Q423. A minimum annual income of $222,800 was required to make the monthly payment of $5,570 in the fourth quarter. With home prices expected to rise in 2024, affordability will remain low but could improve slightly if rates dip meaningfully in the next 12 months.
Home purchase sentiment reaches highest level in nearly two years: Home Purchase Sentiment released by Fannie Mae rose again in January 2024, with the index increasing 3.5 points to 70.7 in the latest monthly read, the highest point since March 2022. The climb was due partly to the increase in consumer confidence in job security and partly due to the jump in the share of consumers who expected mortgage rates to decrease in the short term. Respondents expecting mortgage rates to go down in the next 12 months, in fact, reached an all-time high of 36% in January. Despite the optimism in rate movement, consumer perception on homebuying remained pessimistic, and the share who believed that it is a good time to buy stayed low at 17%, unchanged from the prior month. With affordability expected to improve slightly but remain low in coming quarters, home purchase sentiment could inch up in 2024 but the increase will be mild.
Business leaders feeling more positive about the economy: CEO’s optimism about the current economic conditions has improved solidly at the beginning of the year compared to the previous quarter, according to the Conference Board Measure of CEO Confidence. The index surged to 53 in Q124 from 46 in Q423 and surpassed 50 for the first time since Q122. A reading of above 50 indicates that there were more positive than negative responses, a reflection of CEOs feeling more optimistic about their economic outlook. Nearly one-third (32%) of CEOs said that general economic conditions are better than they were six months ago, an increase from 18% reported in Q423. Close to two out of five (36%) in Q124 expected the economy to improve over the next six months, a jump from 19% in the prior quarter. When asked about the main U.S. challenge affecting their business this year, half of them cited “political uncertainty ahead of 2024 elections” as the greatest challenge. As for global challenges for their business in 2024, “the spread of existing wars” was cited the most at 46% by the respondents. There are economic opportunities in the year ahead as well, as “reduced inflation” (34%) and “the Fed interest rate cuts” (28%) were seen as the top U.S. developments that will benefit businesses this year.
Short-term inflation expectations remain mostly stable: Consumers expectations on inflation a year from now were mostly unchanged in January, according to the latest New York Fed’s Survey of Consumer Expectations. At the one-year horizon, the median inflation expectation recorded a 3% in January, the same as what was reported in December 2023, but a sharp drop from 5% registered in January 2023. Two out of five (41.3%) of the respondents expected inflation to rise above 4% a year from now, while one out of four (24.5%) believed inflation should be between 2% to 4% in a year, and one out of three (34.1%) projected inflation to be below 2% a year out.
Construction spending gains momentum at the end of 2023: U.S. construction continued to expand as spending in December increased 0.9% month-over-month and jumped 13.9% year-over-year. Residential outlays played a big role in the overall gain, as construction spending in residential in the final month of the year went up 1.4% from the prior month and surged 6.8% from December 2022. With existing housing supply remaining tight and mortgage rates expected to trend down in the next 12 months, residential spending – single-family outlays in particular – should rise further as home builders continue to scale up production in 2024.
If you have any questions or would like personalized advice regarding the current market conditions, please feel free to reach out. Your success in real estate is my top priority.
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Huntington Beach 92649
4 Bed | 5 Bath | 2,293 SF | $1,650,000
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14715 Bellflower Blvd.
Bellflower 90706
2 Bed | 1 Bath | 805 SF | $645,000
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837 Chestnut Ave. #12
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2892 Walker Lee Dr.
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12661 Martha Ann Dr.
Rossmoor 90720
4 Bed | 3.5 Bath | 2,221 SF | $6,500 / mo
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8738 Belmont St.
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3 Bed | 2 Bath | 1,276 SF | $699,000
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3 Bed | 2 Bath | 2,142 SF | $1,250,000
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2512 W Beachy Pl
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3 Bed | 2 Bath | 1,695 SF | $875,000
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2174 Stanbridge Ave
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3 Bed | 2 Bath | 1,489 SF | $905,000
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807 Delaware St
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4 Bed | 5 Bath | 3,237 SF | $2,605,000
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5417 Bonfair Ave
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4 Bed | 2 Bath | 1,746 SF | $950,000
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251 Elm Ave.
Long Beach 90802
2 Bed+Den | 3.5 Bath | 1,750 SF | $915,000
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781 W 30th St
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