Inflation rates dropped slightly in today’s reading for May. The “core” inflation reading was the lowest in 2 years, though still above the Fed’s 2% target. 

In reaction to the new inflation report, today’s preliminary reading for the average 30-year interest rate dropped back down below 7% to 6.98%. 

Stock markets reacted with rapture. A drop in inflation encourages hopes for earlier Fed reductions in their benchmark rate – though these predictions can change daily, optimistic and pessimistic in turn. Still, stock markets continue to hit dramatic new highs, a big factor in real estate markets, especially more affluent markets. 

Some overview data and charts on general Bay Area market dynamics (which vary by county – see new June reports for specifics):  Generally speaking, these dynamics on new, active and sold listings, and price reductions are also occurring nationally. 

Bay Area:  Year-over-year changes, comparing May 2024 with May 2023:  

1.     The number of new listings coming on market:  +8%
2.     The number of active listings on a given day:  +37% – buyers have more choice
3.     The number of price reductions:  +52% – an unusual dynamic for the heart of spring selling season. (Some markets have seen price reductions more than double year over year.)
4.     The number of home sales:  +7.5% 
5.     The number of homes sales, $3 million & above:  +63% – higher price and luxury home sales dramatically outpacing the general market
6.     The number of home sales, $5 million & above:  +37% 

CA Dept. of Insurance just published county data on Fair Plan policies for 2022 (and we know things only got worse in 2023). The Fair Plan website has data on the rise in Fair Plan financial exposure to potential losses across the state, 2018 through 2023:  +176%.  

Inflation rates – both general and “core” – ticked down (slightly) in yesterday’s reading for April. Stock and bond markets reacted very favorably.

Daily Average 30-Year Mortgage Rate – slipped back under 7% yesterday for the first time since early April.

Financial Markets: After a very volatile 5 weeks – from the 4/10 inflation reading to the 5/15 reading – stock markets hit new all-time highs yesterday:

Bay Area Appreciation & Market Cycles since 1990. Below is the summary overview chart, a very approximate, smoothed-out graph of overall Bay Area appreciation trends.

The report includes over a dozen other charts that break out approximate median house sales price changes by county during specific market cycles, such as the one below.

Consumer Sentiment (Confidence) Index: “Consumer sentiment retreated about 13% this May [preliminary reading as of 5/10] following three consecutive months of very little change… [bringing] sentiment to its lowest reading in about six months. This month’s trend… is characterized by a broad consensus [of economic concerns] across… age, income, and education groups.” Joanne Hsu, Director, Surveys of Consumers, 5/10/2024

National house price and rent appreciation rates since 1980: A dramatic divergence since the pandemic hit (as well as previously during the subprime boom).

The Price of Gas: An issue that consumers are very sensitive to.

New listings in April 2024 were up 27% year over year to hit their highest monthly total since mid-2022.

Active listings on any given day were up 29% year over year. Active listings typically continue to climb through summer or fall.

The number of Bay Area listings in contract on any given day in April was up 8% year over year, to hit its highest number since autumn 2022. And the number of Bay Area price reductions in April 2024 was up 37% from April 2023. Again, specific data for individual markets – trends do vary – will be in the upcoming May newsletters.

Interest rates ticked up slightly in the Freddie Mac reading issued today:

“The 30-year fixed-rate mortgage increased for the fifth consecutive week as we enter the heart of Spring Homebuying Season. On average, more than one-third of home sales for the entire year occur between March and June. With two months left of this historically busy period, potential homebuyers will likely not see relief from rising rates anytime soon. However, many seem to have acclimated to these higher rates, as demonstrated by the recently released pending home sales data coming in at the highest level in a year.” FHLMC, 5/2/24

As as expected, the Fed kept their benchmark rate steady yesterday:

Yesterday’s inflation release: Overall inflation ticked up in March to 3.5% from 3.2% in February. The “Core” rate remained at 3.8%. The Fed’s target rate is 2%.

The discussion regarding the Fed’s expected benchmark rate cuts this year has markedly changed in recent weeks. From today’s WSJ: “The latest data [regarding inflation] raises two different possibilities. One is that the Fed’s expectation that inflation continues to move lower but in an uneven and ‘bumpy’ fashion is still intact…In such a scenario, a delayed and slower pace of rate cuts is still possible this year. A second possibility is that inflation…is getting stuck at a level closer to 3%. Without evidence that the economy is slowing more notably, that could scrap the case for cuts altogether.” That is a big change from the recent commonly held expectation of 3 cuts this year – but if CPI swings lower suddenly, the outlook could change very quickly.

Another article in the WSJ talks about another big issue beyond interest rates in housing affordability, not just for buyers, but for existing owners, The Hidden Costs of Homeownership Are Skyrocketing: “Rising insurance premiums, property taxes and maintenance costs show little sign of abating.” Of course, how hard specific issues are hitting any particular market can vary enormously. As we know, some regions prone to natural disasters are seeing stupendous increases in insurance premiums. But virtually all markets have seen enormous home-price appreciation since 2019, with parallel effects on property taxes (except in CA where Prop 13 limits these for existing owners). And inflation has deeply affected the costs of maintenance and repairs. This is like a triple-whammy hitting the real costs of buying and owning, and one big reason why the market is being more driven by more affluent home buyers now.

Weekly Average 30-Year Conforming Interest Rates from Freddie Mac. Since it’s a weekly average, it was not much affected by yesterday’s inflation reading. From the year’s beginning, it has been oscillating within a relatively narrow band of readings.

Daily Average 30-Year Interest Rates (not limited to conforming loans). Today’s headline on the Mortgage News Daily website: “Basically The Worst Day for Interest Rates Since October 2022.” As one can see these short-term changes can reverse direction very quickly, but the general trend since the year began has been upward, not what we were hoping for. Though so far, as we’ve seen, the market has been taking this in stride.

Stock markets have also been generally taking the latest CPI reading in stride, falling a bit yesterday, but already rebounding today: This is a daily rate chart for the S&P since 11/1/2023, when the market began its huge surge. Stock markets have a big effect in more affluent markets, on household wealth and consumer confidence.

The preliminary Consumer Sentiment (or Confidence) for April comes out tomorrow. You will be able to find it here.

Foreign-Born Map just released by the Census. CA has the highest state percentage of foreign born residents, and some Bay Area counties see percentages significantly higher than the state.

The price of oil has been rising in 2024.

As illustrated in the first 5 charts, trends in interest rates, stock markets and consumer confidence have been relatively steady.

Bay Area overviews – Regional markets are generally seeing similar trends, but they do vary.

Interest rates: Weekly and Daily averages from sources that use different methodologies, but show the same trends.

Stock markets had another very big day yesterday. The change in stock markets has had an enormous effect on household wealth in the Bay Area – especially among more affluent buyers – who seem to be jumping back into the market in greater numbers than buyers in lower price segments.

Nationally, per NAR, the percentage of all-cash sales hit 9+ year high. Besides investors, who often pay cash, 40% of homeowners own their homes free and clear – when they sell, they have plenty of cash to buy. And long-term owners who still have mortgages have generally accumulated a lot of equity. Then there’s the new stock market wealth, and, of course, the very affluent.

The next 2 data charts illustrate short-term seasonal market trends, September to Present:

Bay Area Sales Price Seasonality by Month: Median sales prices typically peak in spring for 2 reasons: The scale of demand outpacing the number of new listings coming on market – buyer competition is the main factor behind price increases – and because luxury home sales usually increase as a percentage of sales in spring. The luxury home market is even more fiercely seasonal than the general market.

Mortgage rates decreased this week, reaching their lowest level since May of 2023. This is an encouraging development for the housing market and in particular first-time homebuyers who are sensitive to changes in housing affordability. However, as purchase demand continues to thaw, it will put more pressure on already depleted inventory for sale.” Freddie Mac, 1/18/24

Generally speaking, weekly average rates have been flat for the last 4-5 weeks, after their dramatic decline in late 2023. Recent comments by Fed Board members have slightly dampened expectations for benchmark-rate declines in coming months. Trying to constantly read the tea leaves of Fed comments is an iffy basis for confident forecasts.

Daily average rates have been climbing over the last couple days (though few days data is not particularly significant).

Jumbo rates are running over 7%.

Consumer Confidence/Sentiment is soaring: “Over the last two months, [consumer] sentiment has climbed a cumulative 29%, the largest two-month increase since 1991…For the second straight month, all five index components rose…a broad consensus of improved sentiment across age, income, education, and geography…and is likely to provide some positive momentum for the economy…Year-ahead inflation expectations softened to 2.9%.” Univ. of Michigan Consumer Sentiment Index, Director Joanne Hsu, 1/19/24

Stock markets are climbing rapidly again. The S&P 500 Index hit a new all-time high today. Though the Nasdaq has increased much more over the past 13 months on a percentage basis, it remains slightly below its late-2021 peak. Stock markets are a major factor in household wealth, and especially important in more affluent housing markets.

New state and county migration data was published by the U.S. Census on 12/19/23: State data goes through 7/1/23. Foreign migration continues to rebound, but net domestic migration remains deeply negative, leading to a small decline in total CA population in the last 12 months measured (after adding in the increase from natural growth, i.e. births less deaths). 2023 population data for counties has not yet been released by the Census.

SAMPLE of the 12 Bay Area (+ Sacramento) Migration slides from 12/2023 Census release. Sadly, county migration data always runs at least 2 years behind: This is through 2021 and is the most current data available. In another year, we’ll get 2022 migration data.

Today’s weekly average interest rate reading declined again: “The 30-year fixed-rate mortgage remained below seven percent for the second week in a row, a welcome downward trend after 17 consecutive weeks above seven percent. Lower rates are bringing potential homebuyers who were previously waiting on the sidelines back into the market and builders are already starting to feel the positive effects.” Freddie Mac, 12/21/23

Interesting data regarding the gender pay gap: The gap, of course, is very unfortunate, but at least CA has the smallest gap in the nation. (The Census data uses only the 2 genders in its analyses.)