The CALIFORNIA ASSOCIATION OF REALTORS® released its June housing market report last week and it showed an unprecedented rebound in closed sales and the state also set a new all-time high price of more than $623,000. Additionally, the economy has enjoyed a variety of positive reports in the past week on interest rates and the labor market. And yet, even as we continue to make solid progress, some of our pre-crisis structural issues have reasserted themselves and the near-term economic uncertainty has increased significantly as well.
Things continue to slowly improve, but it is clear that a full recovery is still a long way off.
California’s housing market recovers significant lost ground in June: After a record 41.4% decline in closed transactions in May 2020 due to coronavirus-related shelter in place orders, California saw the number of home sales rebound sharply in June. Home sales increased by more than 40% on a month to month basis. And although California is still below 2019 levels by 12.8%, it is a marked improvement from the sub-300,000 levels of April and May.
California’s unemployment falls amidst record job growth in June: California’s unemployment rate edged down from 16.4% in May to 14.9% in June as nonfarm payrolls swelled by more than 500,000. This marks the second consecutive monthly gain and means that California has already recovered nearly 700,000 of the roughly 2.6 million jobs lost in March and April.
More REALTORS® closed a transaction last week: The percentage of California REALTORS® that had a transaction close escrow last week increased slightly from 24% two weeks ago to 26% last week. Low rates have been translating into increased demand for home showings and a trend of rising mortgage applications since mid-April and although supply remains tight, California has seen many of those pending sales from April and May eventually close.
Pending sales increased for first time in 4 weeks: C.A.R.’s latest weekly analysis of MLS data across California reveals that pending sales increased for the first time in 4 weeks to an average of nearly 1,100 homes entering escrow per day last week. Prior to last week, home sales had been declining since late June. However, pending sales in California have now been above their pre-coronavirus levels for 11 weeks in a row.
Closed sales decline for first time in 10 weeks: Despite the solid June report on California’s housing market, the weekly MLS data shows that closed transactions declined for the first time since the week of May 9th. Previously, we have reported on flat or declining pending sales and this result is largely consistent with the slowdown in homes entering the escrow process we have observed over the past month.
Pending sales suggest a slow August: Although pending sales increased last week for the first time in nearly a month, the level of pending sales has been essentially flat for much of the past month. This suggests that although July may see closed sales shoot back into positive territory, more robust growth in August and September remains very much in question as the pace of new escrows subsides.
Inventory remains a significant challenge for California’s housing recovery: One key reason the recent rebound is losing momentum in recent weeks is that there is not enough inventory on the market for buyers to purchase. A myriad of indicators from jobs to spending to requests for home showings or new mortgage applications show that consumers continue to want to purchase a home, but the 43% decline in active listings across the state in June compared with last year have prevented many of these buyers from being able to do so.
More transactions are falling out of escrow, fewer members getting into escrow last week: The economy has made significant progress since mid-April, but a recent survey of California REALTORS® suggests that the recent increase in uncertainty has had a modest impact on their business. In the survey conducted over the weekend, the percentage of REALTORS® that had a transaction fall out of escrow during the week remained at 6%--slightly elevated from 5% three weeks ago. In addition, the percentage of respondents that entered escrow on a new transaction fell to 26% last week from 30% the previous week. This was the second consecutive decline.
Consumer sentiment declines in July as some businesses reclose: After recovering slightly in May and June, the University of Michigan’s preliminary estimate of consumer sentiment reversed course last week amidst re-shelter-in-place orders and general economic uncertainty. This is significant because consumer spending is still responsible for roughly 70% of the U.S. economy, which means a v-shaped recovery and much harder to achieve when consumers aren’t increasing their spending.
Last week was another week of contrasts: record job growth, record increases in home sales, new all-time high levels of home prices, and all-time low levels of interest rates contrasted against new closures in the state, rising initial claims for unemployment insurance, declining consumer confidence, and increasing difficulties in addressing the pandemic. It is hard to look at the data and not be optimistic about the progress we’ve made in the past three months, but it is equally hard to look ahead and not see increased economic uncertainty as well.