April 24, 2023 – News from last week showed that while buyers perhaps took advantage on lower mortgage rates at the start of the year, a recent upturn in mortgage rates threatens to keep the housing market under pressure. Sales of existing single-family homes took a step back as well as mortgage applications. Residential construction on the other hand, particularly for single-family homes, picked up as builders grew less pessimistic towards the market. The latest report showed builders were more optimistic about present/future sales and stated witnessing an uptick in buyer traffic and a smaller share offering buyer incentives. Lastly, the labor market continued growing although growth slowed considerably in March, especially in California.

Uptick in mortgage interest rates nudges down California home sales: Moderately higher interest rates held California home sales essentially flat in March, totaling over 280,000 on a seasonally adjusted annualized rate for the second consecutive month. The competitiveness in the housing market, however, continues to heat up as homes are selling faster and the sales-to-list-price ratio is improving. As a result, the statewide median home price recorded a healthy increase of 7% on a month-to-month basis after six months of straight declines. That said, the number of homes available for sale continues to tighten as fewer new listings are failing to replenish inventory. All signs point to a market with solid demand, which should help bolster sales through the homebuying season, but tight inventory will prevent a rapid rebound.

Increase in mortgage rates prompted a pullback in mortgage application activity: Mortgage applications decreased 8.8% from one week earlier for the week ending April 14,2023 as mortgage interest rates inched up. Demand continues to demonstrate sensitivity to rate changes with purchase applications declining from the week prior and the same time a year ago, just as mortgage interest rates moved up for the first time in over a month. Refinance activity also fell on a week-to-week and a year ago basis. According to Freddie Mac, the average 30-year fixed rate mortgage bumped up to 6.39% as of Thursday, April 20,2023 – 116 basis points higher than the same time from last year. Although home prices have softened somewhat, rates are stuck above 6%. As such, affordability continues to be a serious issue for many potential homebuyers and with limited inventory of homes, buyers will be more selective about when to act.

Single-family construction picks up, though multifamily drags overall construction down: Total housing starts fell 0.8% to a 1.42-million-unit pace during March while February's strong gain was revised slightly lower to a 1.432-million-unit pace. The monthly dip from February was mainly driven by a decline in multifamily construction which overshadowed the progress made in single-family construction. Although multifamily starts recorded a decline, it continues to advance at a robust clip having an annual unit pace higher than 2022 as a whole. Single-family construction on the other hand despite having its third monthly improvement over the last four months, it remained behind last year by 27.7%. By region, the West was the only one with a decline over the previous month and recorded the greatest pullback over the year at -53.4%. That said, builder sentiment improved for a fourth consecutive month and building permits along with it, which rose 4.1% in March, suggesting an uptick in new construction in the months ahead.

Employment expands in most states including California, but growth is slowing: Nonfarm payrolls rose in 36 states and contracted in 14 in March. A slight step back from the revised down 39 states with job gains in February. California downshifted considerably as it added less than half (8,700) of the net jobs over the month compared to February's 21,800 gain. Construction lost the most jobs, followed by professional & business services and financial activities. Despite the deceleration, strong payroll growth in January bumped up California's monthly average job gains to 32,700 for the first quarter of this year – modestly higher than the 21,200 added the previous quarter. California's unemployment rate remained unchanged, however, at 4.4%. More recently though, jobless claims inched up to 245k last week and although still lower than pre-pandemic levels, a clear upward trend in layoffs since the start of the year provide evidence to further labor market softening ahead.

The typical homeowner gained six figures in wealth over the last decade: A new housing report by the National Association of Realtors®(NAR) revealed that middle-income homeowners accumulated $122,100 in wealth as their homes appreciated by 68% in the last 10 years. While the report also highlighted the existence of disparities between different income levels as well as race/ethnic background, no one was exempt from accruing a minimum of $98,900 in wealth from home price appreciation over the last decade. What's more, homeowners saw their debt drop by 21% and many more were able to refinance and lock-in a rate lower than 4% in the months following the onset of the pandemic, which helped save thousands of dollars in interest rates over the life of the loan. The top 10 areas with the largest wealth gains for low-income owners were all located in California and exceeded $290,000.

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