Housing has been on the leading edge of economic growth since the recovery began, but several signs show that a hot market is causing the market to moderate earlier than normal. Closed sales are likely to exhibit high double-digit growth for May and June, but the overall level of home sales is slipping from its decades-high level at years’ end. Rapid growth in home prices has caused some buyers to become discouraged—even as rates dipped below 3% again.  Encouragingly, the number of new listings being added to the MLS each day has finally started to exceed closed sales and C.A.R. is still forecasting at least 10% growth in home sales this year.

Consumer Confidence Hits Post-Crisis High: Consumer confidence reached its highest level since the onset of the crisis as many get back to work and the economy in many parts of the nation starts to reopen. This is a vital component of overall GDP and more robust main street consumer spending will help to generate additional jobs recovery in the retail and restaurant sectors in coming months. 

California Unemployment Claims Drop to Post-Crisis Low: California ended May with its 9th consecutive week with fewer than 100,000 new claims for pandemic and traditional unemployment insurance. With less than 65,000 new unemployment claims filed, last week also marks the smallest number of claims since March of 2020. As the economy is poised to reopen this week, many of the service sector jobs, which bore the majority of the job losses, are expected to begin to come back as consumers participate more fully in the economy.

Signs of Optimism for the Fall Market: The number of active listings has started to rise as the number of listings being added to the MLS each day has started to increase. Although total active listings remains depressed relative to 2020 and 2019 levels, there has been more inventory on the market over the past 2 months after reaching a nadir back in March. The number of new listings coming onto the MLS is still down from normal levels, an increase in supply could help would-be buyers who are facing an incredibly competitive market environment and help to sustain an elevated number of home sales.

Rates Dip Slightly as 10-Year Treasuries Moderate: The average 30-year fixed-rate mortgage (FRM) dipped slightly to 2.96% last week – remaining below the critical 3% threshold. The 10-year Treasury initially rose early last week after a decent jobs report, but began to slide during the second half – hitting just 1.45% to begin this week. However, spreads have widened, which may mean some ongoing softness in mortgage rates for the coming weeks, but the medium-term trend is likely towards higher rates.

COVID Numbers Moving in Wrong Direction as We Approach Reopening: After several months of ongoing improvement, California’s public health numbers have started to deteriorate again, albeit modestly. The 7-day moving average for new cases remains below 1,000 per day, but it has been rising for the past 4 days consecutively and the raw case volume was above 1,000 over the weekend. The immunization rate has begun to settle in the mid-50s, but varies significantly by county.  

Mortgage Applications Post Largest Drop in Over a Year: The number of new mortgage purchase applications fell 24% last week to their lowest level since January. After growing for 52 consecutive weeks on a year over year basis, new applications first began to decelerate in April. By mid-May, mortgage applications had begun to fall, and dropped by double digits the first week of June. This is consistent with both the C.A.R. and Fannie Mae home purchase sentiment indices released last week, which showed increasing pessimism amongst buyers as prices rise and competition over limited available listings remains fierce.

Cashing Out Amidst Double-Digit Price Growth: Freddie Mac’s quarterly report on cash out refinancing shows a marked increase in spending from home equity. Nearly $50 billion in home equity was cashed out in the most recent quarter. Some of this is driven by consolidation of other debt at low rates, but the percentage of loans resulting in a principal balance at least 5% higher than the original first mortgage has also risen to nearly 50% of mortgage originations. This still pales to the nearly $85 billion cashed out at the peak of last cycle, but it does represent a sizable shift from just $20 billion a few years ago.