Update: In observance of the Christmas and New Years holidays, the weekly market minute report will not be updated 12/23/2024 or 12/30/2024. Regularly scheduled updates will resume starting on 01/06/2025. Thank you for your readership!

December 16, 2024 – Despite mortgage rates remaining elevated in the past couple of months, the latest housing report offers some hope that the market will continue to get better as we wrap up 2024 and move into 2025. While home sales remained well below the pre-pandemic norm in November, market conditions continued to improve year-over-year. Inflation appears to be sticky, but it is in line with expectations for now, and the Fed will likely follow through with a reduction this week as such. Consumers are also feeling more optimistic about the housing market, which is a good sign that many potential homebuyers could be moving off the sidelines in the coming year.

California home sales have largest gain since mid-2021: California had its largest yearly increase in existing home sales since June 2021 in November, but its housing market remained a work-in-progress. Despite a double-digit growth rate from their year-ago level, sales of existing single-family homes remained well below the pre-Covid norm of 400,000 units (seasonally adjusted and annualized). The strong year-over-year gain observed last month was largely due to low-base effects, as home sales in November 2023 dropped to their lowest level since late 2007. Nonetheless, the increases from the prior year and the prior month were real, and the year-to-date sales growth improved to 3.1% in November.

Home prices in California maintain their moderate growth pace: The statewide median price in November continued to climb on a year-over-year basis for the 17^th consecutive month, but the gain recorded last month was smaller than the 6-month moving average observed between May 2024 and October 2024. The deceleration in price growth is an indication that further softening in home prices could be forthcoming in coming months. With the market slowing for the holiday season, home prices in the next couple of months are expected to moderate further on a month-to-month basis, but we should continue to see low single-digit year-over-year gains through the first quarter of 2025.

Housing sentiment up again as more consumers expect mortgage rates to fall: Home Purchase Sentiment released by Fannie Mae increased 0.4 points in November and climbed to the highest level since February 2022, as a new record-high share of consumers expected mortgage rates to decline over the next 12 months. The share of survey respondents who believed rates would decline in the next 12 months surged five percentage points in November to a new high of 45%, while nearly two out of five (38%) still expected home prices to go up in the same period. Consumer confidence towards the housing market generally improved with the share of respondents who said that it is a good time to increase 3 percentage points to 23% in October, while the share who said it is a good time to sell remained unchanged at 64%. Consumers feeling optimistic about the housing market is encouraging and could be an indicator that more potential buyers are ready to get off the sidelines.

Inflation accelerates but is in line with expectations: The latest headline Consumer Price Index (CPI) went up 0.3% from the prior month and was up 2.7% from the same month of last year. While the latest annual price growth was 0.1 percentage point higher than that in October, both the monthly and the yearly increases were in line with the consensus expectations. The latest report suggests that prices remain sticky as the headline inflation number ticked up for the second straight month since it reached the recent low at 2.4% in September. Excluding energy and food prices, the core CPI rose 0.3% for the month and inched up to 3.3% for the year-over-year growth rate. Shelter costs, which accounted for 40% of the total increase in CPI in November, rose 0.3% month-over-month and increased 4.7% year-over-year. Despite the housing-related inflation remaining stubbornly high, both rent of primary residence and owners’ equivalent rent recorded the smallest monthly increase in 3 ½ year, which is an encouraging sign.

The Fed is still expected to cut rates: Mortgage rates had declined throughout the last two weeks of November but started trending up since early December. Higher-than-expected inflation data released recently was partly to blame for the hike in rates in the past couple of weeks and concerns about how much the Federal Reserve will lower its fed funds rate in the upcoming year continues to play a role in the rate volatility. With inflation next year likely to come down more slowly than previously thought, many economists lowered their expectations on the Fed’s quantitative easing plan for 2025 and predicted fewer rate cuts by the central bank in the upcoming year. The Fed is still expected to cut rates by 25 basis points in the December FOMC meeting, but a more cautionary message could be attached to the upcoming rate-cut announcement. 

Post-election optimism surges for small business owners: Small business optimism soared to the highest level since June 2021, as the NFIB headline index shot up eight points to 101.7 in November. The surge in the latest month pushed the index above its 50-year average of 98 for the first time since January 2022. Nine of the ten components that make up the index improved from the prior month and only one remained unchanged. Optimism on the economic outlook and sales expectations, in particular, increased sharply as owners are hopeful for changes in taxes and regulations that will favor strong economic growth in the coming years. The jump in owners’ confidence was undoubtedly bolstered by the election outcome, but the ongoing Fed’s rate cuts also helped improve lending conditions for small business owners. And with the election behind us, owners now have more clarity on what may happen to taxes and regulations in the upcoming year. As such, the uncertainty level also dropped 12 points from October to 98 but remained elevated above recent trends. 

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