“The Federal Reserve cut interest rates by a quarter point on Wednesday, bringing the target range to 4.25% to 4.5%. The central bank revised its outlook for rate cuts in 2025, however, indicating that there will be two reductions. That’s down from the four forecast in September. Fed Chair Jerome Powell said that the central bank would be looking for progress on inflation, noting, ‘We have been moving sideways on 12-month inflation.'” CNBC, 12/18/24

The suggestion of only 2 cuts in 2025 was not what investors and bond markets wanted to hear. Stock markets plunged yesterday, though they started to rebound slightly today, and mortgage interest rates spiked up. These changes constitute very short-term data.

Interest rates:  Counter-intuitively, rates have climbed since the Fed first started reducing their benchmark rate – because the reductions and guidance on future cuts were never as substantial as investors desired.

Stock markets: The sudden drop from the latest historic highs followed the latest Fed pronouncement (but have rebounded slightly so far this morning). But as illustrated, short-term ups and downs are very common.

Snapshots regarding debt: Mortgage, credit card, margin, federal. Except pertaining to mortgage debt (which, though ticking up, remains historically very low), indicators pertaining to margin (investor), credit card and, especially, Federal debt are not moving in positive directions. The huge, continuing increase in federal debt and debt payments may eventually have serious ramifications for bond markets – and mortgage rates.

This week, mortgage rates decreased to their lowest level in over a month. Despite just a modest drop in rates, consumers clearly have responded as purchase demand has noticeably improved. The responsiveness of prospective homebuyers to even small changes in rates illustrates that affordability headwinds persist. Freddie Mac, 12/5/24

3 angles on mortgage interest rates: Weekly, Daily, Jumbo Loans

Stock markets (and bitcoin) continue to head into the stratosphere, regularly hitting new historic highs – clearly a major dynamic in higher-price home sales and all-cash buyers.

Inflation ticked up slightly in October. The November reading will be released on 12/11/24. It is unclear whether the Fed will reduce their benchmark rate again this month.

According to NAR Chief Economist Lawrence Yun, “Homebuying momentum is building after nearly two years of suppressed home sales. Even with mortgage rates modestly rising despite the Federal Reserve’s decision to cut the short-term interbank lending rate in September, continuous job additions and more housing inventory are bringing more consumers to the market.”

Per Freddie Mac (FHLMC) research report:

“In the November Economic, Housing and Mortgage Market Outlook, we forecast the mortgage market to improve in 2025, based on a decline in mortgage rates throughout the year. That should loosen some of the rate lock-in effect for existing homeowners and offer more inventory in the market, resulting in slightly higher home sales. It should also boost refinance origination volumes. We expect house prices to continue to grow, although at a slower pace. Our outlook has not been adjusted to reflect any impact of the U.S. election.” FHLMC Research, 12/3/24, Link to the full FHLMC research report

As is the typical seasonal trend, new-listing and accepted-offer activity dropped substantially in November and will almost certainly plummet in December.

The latest Profile of Owners & Renters was just published by the Census on 10/30/24: It compares a variety of factors – such as income, age, education – pertaining to owners and renters.

NAR updated their quarterly metro-area price data:  87% of metro markets registered year-over-year home price gains in Q3 2024, as the 30-year fixed mortgage rate ranged from 6.08% to 6.95%. Note that “metro areas” typically cover much larger areas than just the cities they’re named for. For example, the San Francisco metro area covers 5 counties (SF, Marin, San Mateo, Alameda, Contra Costa). However, the San Jose metro area is 99% composed of Santa Clara County, the county market in the U.S. seeing the biggest impact from the AI boom.

NAR also just issued their “2024 Profile of Home Buyers and Sellers.” Following are highlights. Read the full report here at https://www.nar.realtor/research-and-statistics/research-reports/highlights-from-the-profile-of-home-buyers-and-sellers

National Jobs Report & Unemployment: The unexpectedly high new jobs number in September – which made interest rates spike up in early October – was revised downward by 10%, and the October jobs number just came in at its lowest count since December 2020: Some ascribe the plunge to the effects of the 2 recent, terrible hurricanes. The unemployment rate was unchanged at 4.1%. So far this morning, stock markets are up and interest (bond) rates are seeing little change.

It’s worth pointing out that the latest economic indicators put out by the government – over which stock and bond markets can react very dramatically – are initially labeled “preliminary” and often subsequently revised, sometimes substantially.

30-Year Loan Rates, Weekly & Daily Averages (the providers of this data use different methodologies, though the trends are very similar). It’s been a tough month for interest rates and the analyst forecasts of late September – that rates were heading down through the end of the year – were almost universally wrong (so far).

“Increasing for the fifth consecutive week, mortgage rates reached their highest level since the beginning of August. With several potential inflection points happening over the next week, including the jobs report, the 2024 election, and the Federal Reserve interest rate decision, we can expect mortgage rates to remain volatile. Although uncertainty will remain, it does appear mortgage rates are cresting, and are not expected to reach the highs seen earlier this year.” Freddie Mac, 10/31/24

Real GDP continued to see robust growth in Q3.

Stock markets: As of November 1, the 2 main stock indices were climbing, though that’s a little hard to see in this chart.

Bay Area, preliminary supply & demand snapshots: New, active & pending listings; price reductions. Generally speaking, the trends we’ve been seeing since spring have continued: More inventory, lower absorption, more price reductions. Listing and sales activity typically begins to plunge in November and December.

“Following the release of a stronger-than-expected September jobs report, the 30-year fixed rate mortgage saw the largest one-week increase since April. However, the rise in rates is largely due to shifts in expectations and not the underlying economy, which has been strong for most of the year. Although higher rates make affordability more challenging, it shows the economic strength that should continue to support the recovery of the housing market.” FHLMC, 10/10/24

Weekly, conforming-rate from Freddie Mac, released today:

Weekly average rate from Mortgage News Daily:

Latest inflation report released this morning: General CPI declined again, to the lowest reading since February 2021. “Core” CPI was unchanged at 3.3%. So far today, the response in stock and bond markets has been relatively muted.

NATIONAL supply and demand indicators: The basic reality since spring is that sales activity has been increasingly outpaced by the increase in active listings for sale, which offers more choice and lessens the competitive environment for buyers. The recent drop in interest rates through very early October – before the latest spike up in rates on 10/4 – did not precipitate the substantial rebound in buyer demand that many had expected in September. It may have been that prior to the jump in rates buyers were holding back in expectation of further declines (as forecast by most analysts). October is typically the last major month of market activity before heading into the big mid-winter holiday slowdown, which usually starts in mid-November and lasts until mid-January.

Generally speaking, the overall national market is seeing similar trends to the general Bay Area market.

The pending-sale ratio – a version of the absorption rate – has been falling as the increase in inventory outpaced sales activity. In September, it was as low as last December, and December typically sees the lowest pending-sale ratio of the year.

Inventory outpacing buyer demand has led to a significant increase in price reductions, comparable to levels seen right after interest rates soared in the first half of 2022.

The Fed dropped its benchmark rate today by half a point: As illustrated, once the Fed decides a change in direction is warranted, it can make significant changes quickly.

The daily average 30-year rate is running a little above 6% (though it actually ticked up slightly yesterday).

Stock markets:

The general inflation rate dropped in August to its lowest reading since early 2021.

The Fed left its benchmark rate unchanged at its 7/31 meeting, but based on comments made by the Fed chief and recent economic data, most analysts believe a September rate cut is (finally) coming. The next inflation report comes out on August 14th.

Interest rates have been falling. The weekly average rate (1st chart) is a few steps behind the daily average rate (2nd chart). Note that the providers of these averages use different methodologies as to exactly what types of mortgage rates they are measuring – but the trends are always similar.

Stock markets have been having a rockier time of it since mid-July, though still far up since the year began. Of course, short-term volatility is not uncommon.

Consumer confidence has not yet really rebounded, remaining flat over the past 3 months, though up from the severe lows of 2022-2023.

NAR issued their pending-sale report for June: Pending sales were up slightly from May, but down almost 8% from June 2023. This is consistent with other indicators that some cooling is occurring in the national market. A recent quote from the NAR chief economist: “We’re seeing a slow shift from a seller’s market to a buyer’s market,” said NAR Chief Economist Lawrence Yun on national dynamics. “Homes are sitting on the market a bit longer, and sellers are receiving fewer offers [with more contingencies, and] inventory is definitively rising.”

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: