Market Minute for February 14th 2022 – The economic and market data continue to point to a rising tide that is a source for continued optimism about the housing market in California. Buyer demand remains robust, if down slightly from last year’s record highs. In addition, we are beginning to see some light at the end of the tunnel when it comes to new inventory as REALTORS® have begun to add new homes to the MLS around the state in greater numbers. Even the fundamentals of distressed mortgages showed continued improvement in the 4th quarter by falling to the lowest levels in 18 months. However, interest rates have increased significantly and at a rapid pace during the past three weeks, which will provide a new test to the current strength of home sales as affordability deteriorates as a result.
Mortgage Applications Still on Par with 2020: Although new purchase mortgage applications continue to moderate from 2021 levels, they remain on par with 2020, which was also a robust year for homebuyer demand. Last week, mortgage applications slipped 12% from where they were in at the beginning of February 2021. However, that puts the purchase index roughly 3% higher than it was in 2020, which is also nearly 20% higher than it was in early February of both 2018 and 2019. Although higher rates are expected to curtail demand slightly in coming months relative to the decade-highs reached last year, homebuyers are maintaining a level of interest that exceeds pre-crisis standards.
New Listings Begin Spring Thaw, Slowly: The winter of 2021 saw new listings being added to the MLS each week slow to levels not seen in many years. During the week of Christmas and New Years, it is normal to see less activity on the MLS, but less than 2,000 homes were listed statewide, which is low even by seasonal standards. But after a relatively slow start to 2022, new listings appear to get betting back on track with a noticeable jump over the past three weeks. During the first week of February, more than 4,700 homes were listed and this follows two consecutive weeks of at least 4,500 homes coming onto the market. That is still down slightly from over 5,700 new listings during the same week of last year, but we are slowly beginning to replenish the number of closed sales coming off of the MLS each week.
Mortgage Delinquencies Fall Further in California: Despite the expiration of many pandemic-driven protections for homeowners and tenants, the mortgage market continues to improve. Recently released estimates from the Mortgage Bankers Association show that total delinquencies in California continued to fall during the final quarter of 2021 to just 3.24% of all loans. That is down from 3.63% in the 3rd quarter of 2021 and from a peak of 6.83% of all loans during the second quarter of 2020. Perhaps more important than the magnitude of the decline is its consistent improvement: Q4-2021 represents the 6th consecutive quarterly decrease in mortgage delinquencies in California. There was a slight rise in 30-60 and 61-90 day delinquencies, but serious delinquencies of 90 days or more fell by more than 50 basis points.
Public Health Numbers Improve As California Adjusts Policy: After peaking at more than 300,000 new cases per day in January, coronavirus cases in California continue to improve. The 7-day trailing average fell below 30,000 new cases per day last week, which is the lowest level in over a month. The number of deaths trails the new cases numbers and remain elevated at above 200 per day but should begin to follow suit as cases die down. Hospitalizations are down sharply from last month, and California is outperforming most other states in terms of the number of cases per 100,000 residents.
Mortgage Rates Surge Amidst Strong Jobs Report and Inflation Reading: Following a strong employment report where the nation added nearly 500,000 jobs in January, and elevated levels of inflation (discussed below), interest rates have surged in the past two weeks. The Freddie Mac average 30-year fixed rate mortgage rate remained at 3.69 in their latest report. However, this weekly data does not incorporate the latest daily readings from originators, which jumped above 4% for the first time in more than 2 years. With January’s inflation number rising to a new high and the Fed having already signaled an increase in their target rate in March as well as an unwinding of their portfolio of Mortgage-Backed Securities (MBS), this increase is likely to persist rather that retreat in coming months that will undoubtedly test the current strength of demand.
Please be sure to contact me if you have any questions!
Article provided by California Association of REALTORS