November 20, 2023 - California had a relatively lackluster month for home sales in October as rising rates during August and September weighed on home buyers and further depressed housing inventory. This contrasts with relatively strong economic data for October where job growth re-accelerated and unemployment remained below 5%. However, there are signs that the economy may not be as strong as some labor market indicators suggest, as new unemployment insurance claims trend higher. Fortunately, rates have begun to fall, which should help to motivate some buyers to take advantage of a less competitive winter market.

Mortgage rates drop for 3rd consecutive week: After rising sharply for nearly two months straight, Freddie Mac’s average 30-year fixed-rate mortgage has dipped for the past three weeks in a row. Last week, the average was 7.44%, which is down by roughly 35 basis-points from its high of 7.79% at the end of October. Mortgage News Daily had rates rising above 8% for several days in October, and has since shown mortgages trending down below 7.4%. This is still significantly higher than where rates were last year and is helping to keep buyer demand restrained, but the recent reprieve does appear to be helping mortgage applications shrug off some of their downward momentum (even if they have yet to turn positive).

California nets 40K jobs, but unemployment claims rise: California job growth re-accelerated in October as the Golden State added 40,200 net new jobs even as the unemployment rate ticked up to 4.8%. The jobs data is collected in a separate survey from the unemployment data, and the two sources have been disagreeing of late. A recent upswing in new unemployment insurance claims suggests that the unemployment data could be picking up a slowdown in labor market that is yet to be reflected in the jobs numbers and that employment levels for 2023 may be revised down next year. Although this would mean that the economy hasn’t grown as fast as is currently being reported, it may enable the Fed to take a less aggressive tact on interest rates in 2024.

Home sales relatively flat in October amidst higher rates: Sales of existing single-family homes in California continued to be soft in October as the cost of borrowing remained elevated. On an annualized basis, there were more than 240,000 transactions statewide, which was slightly higher than September, but remains near the winter lows reached in 2022. The statewide median price in October took a step back from the month prior, it rose again from the year-ago level for the fourth month in a row. If the market follows its traditional seasonal pattern, we could see home prices leveling off in the coming months from its spring homebuying peak. However, positive year-over-year growth is likely to persist as long as housing supply remains tight.

Mortgage applications remain depressed, but declines slowing: The overall index for new purchase mortgage applications fell on a year-to-year basis for its 130th consecutive week last week. The first two weeks of November are at their lowest level since December of last year and haven’t been below current levels since 2014 suggesting that sales will remain low through the end of the year. However, the pace of recent declines has slowed and last week was the first time new applications were down by less than 20% for the first time since October as rates have moderated slightly.

Credit card debt tops $1 trillion: Beginning in August, credit card debt in the United States has reached an all-time high of more than $1 trillion in outstanding debt at commercial banks. That represents a $170 billion increase from pre-pandemic levels and is largely responsible for the ongoing strength in consumer spending as personal savings rates trend back down into the low single-digits. Thus far, delinquency and charge-off rates for credit cards remain relatively low (in the 3% range), but both have been trending up this year and have nearly doubled from their respective lows in 2021. The more important question is whether we can expect consumers to continue to propel the economy next year as they face higher borrowing costs, depleted savings, and rising debt levels.

California mortgage delinquencies remain low: Despite the rapid increase in interest rates this fall, mortgage delinquencies in California barely budged during the third quarter. The Mortgage Bankers Association reports that just 2.3% of all mortgages in California were delinquent during the 3rd quarter of 2023. Although this is up from just 2.2% during the second quarter, it does not show a significant increase in the number of distressed mortgages in the state. With the vast majority of mortgages locked into mortgages with interest rates below 6%, Californians have been able to prioritize their payments and keep their mortgages on track. Although these low rates are likely to continue to weigh on transactions as existing homeowners remain reluctant to walk away from their current mortgages, it is helping to prevent a surge in delinquencies that would be needed to precipitate another foreclosure crisis. 

Note: The weekly market minute report is updated every Monday by 6:00 PM PST.