January 22, 2024 –
Existing, single-family home sales totaled 224,000 annualized in December, flat from November and down 7.1 percent from December 2022.
December’s statewide median home price was $819,740, down 0.3 percent from November and up 6.4 percent from December 2022.
The unsold inventory index in December was 2.5 months, down 16.7 percent from November and below the long-run average of about 6 months.
The housing market had a tough year in 2023 as tight supply and high costs of borrowing continued to have a negative impact on supply and demand. Easing inflationary pressure and a soft economic outlook, however, suggest that there will be some interest rate cuts on the horizon in 2024, which bode well for a housing market recovery. With rates declining to a 7-month low late last year, Americans are feeling more positive about the market, and we could begin to see some increase in market activity at the start of the year. Meanwhile, home prices should maintain their upward momentum as tight supply remains the norm and the market will likely observe a mid-single-digit year-over-year growth rate in the statewide median price in at least the early part of 2024.
California home sales remain stagnant at the end of 2023: California home sales in December remained near the 16-year low reached in November and continued to drop year-over-year for the 30th straight month. For the year as a whole, 2023 recorded an annual sales level of 257,630, a decline of 24.8% from the revised sales level of 342,530 reported in 2022. The annual sales decline in 2023 was the biggest drop in existing home sales in California since 2007. With rates moderated sharply at the end of 2023, home sales should see a bounce back in January and February, but the improvement will be mild in the next couple of months.
Tight supply continues to be the norm but market could see more inventory this spring: Active listings at the state level declined on a year-over year basis for nine straight months, and the decline for the current month remained above 10%. New active listings at the state level also dipped from a year ago for the 18th consecutive month but the annual decline remained below three percent for the second month in a row. Twenty-four of the fifty-one counties tracked by C.A.R., in fact, increased in new active listings from December 2022. With mortgage rates remaining well below the cyclical peak reached last October, the market will hopefully see more for-sale properties being listed in the first quarter of 2024.
Housing starts dip from November but builder sentiment boost hopes for spring: The U.S. Census Bureau reported a seasonally adjusted annual rate of 1.46 million units of housing starts in December, a drop of 4.3% from November but an increase of 7.6% from 1.36 million in December 2022. Single-family starts dipped 8.6% on a month-to-month basis but jumped 15.8% from 12 months ago. The monthly decline in December was attributed partly to a change in weather conditions, as an unseasonably warm November could have pulled some constructions forward. Building permits, on the other hand, inched up slightly by 1.9% from November and by 6.1% from 12 months ago. Builder sentiment continues to improve as lower mortgage rates motivate more potential homebuyers to return from the sidelines. The National Association of Home Builders’ Housing Market Index (HMI) increased seven points to 44 in January, reaching the highest level since September 2023. More permits and higher builder confidence level suggest that housing construction could rise again in coming months.
Retail sales remained strong and exceeded expectations: Consumers spent more than expected in the final month of 2023, with December retail sales up 5.6% (not inflation adjusted) year-over-year. The latest retail sales report showed broad-based solid growth at the end of last year, with spending at Restaurants and Bars surging the most (11.1%) from the prior year, followed by Electronics and Appliances (10.7%) and Health and Personal care (10.7%). Many shoppers have used the “buy now, pay later” financing option during the holidays, with the payment plans racking up $16.6 billion in online spending during the holiday season. As such, there could be a pullback in consumer spending in the months ahead as bills come due for shoppers who borrowed forward at the end of last year.
Biggest 2-month surge in consumer sentiment in 30+ years: Consumer sentiment reported by the University of Michigan jumped to the highest level since 2021 as Americans began to feel more upbeat about the economy. The sentiment index climbed 9.1 percentage points to 78.8 and the surge was the biggest monthly increase since 2005. On a two-month basis, the index rose 29% cumulatively and posted the largest 2-month increase since 1991. Compared to the all-time low registered in June 2022, the reading in January 2024 was 60% higher. With inflation cooling and the labor market remaining solid, it is not a surprise that consumer sentiment began to pick up in recent months. Inflation expectation a year from now, in fact, declined to 2.9% in January from 3.1% in December, the lowest level since December 2020. The rapid improvement in consumer sentiment is a positive sign for the general economy but is also a signal that rates could remain higher for longer.