The economic and market data for this week continues to paint a picture of an economy that is recovering, albeit at a slower pace than during the initial phase of the rebound. However, the road to recovery has been and remains long and fraught with potential pitfalls. In addition, the President signaled this week that further relief is unlikely prior to the election creating another source of concern. Things continue to improve, but the optimism remains couched in uncertainty.
Sales Increased Last Week: Although a modest improvement, the average number of closed transactions per day increased last week after dipping the previous week. Most of this growth was centered in Southern California with the rest of California holding steady from the week before. The top end of the market continues to overperform as $1-$2M (+4.8%) and $3-$5M (+11.1%) were the fastest growing segments last week.
Fewer Buyers and Sellers Getting Cold Feet: In the latest survey of California REALTORS®, the percentage of respondents with a buyer who withdrew an offer on a home that they had been ready to move forward with declined by 17.2%. Buyer demand has been ferocious as evidenced by mortgage applications and as rates have remained low, fewer are trying to back out of deals. As the competitiveness has increased, sellers are also getting more confident as the instances of withdrawn listings fell -14.6%.
Encouraging Signs in Macro Economy: As the labor markets have gradually healed and businesses have started to reopen, the broader economy has shown some encouraging recent signs of life. Construction spending rose 1.4% in August, mortgage rates declined further last week to 2.88%, unemployment dipped to 7.9%, and the service sector showed signs of life as the ISM index increased above expectation.
Inventory Shortage Intensifies: The number of new listings added to the MLS statewide in California declined by 1.2% last week—the second consecutive weekly decline. New listings were down in all 5 major regions of the state last week as well, so the robust buyer demand will face increasing difficulty fulfilling itself in the coming months. However, we remain optimistic that the market mechanism will entice some sellers back into the market.
REALTORS® Tell Us We Have Slower Weeks Ahead: California REALTORS® reported that they did fewer listing appointments last week (-7.2%), listings themselves were essentially flat (+1.2), new escrows fell (-14.3%), and closed transactions declined as well (-7.9%). Things are still generally much improved compared to the nadir back in May 2020, however, the recent data from REALTORS® has also started to match some of the slower economic data as the inventory shortage has ramped back up.
Job Growth Continues to Slow: Although labor markets continued to show progress in the September employment report released last week, the pace of the jobs recovery slowed further last month. Overall, there were 661,000 new jobs created as many of the temporary jobs created to administer the 2020 Census went away. Many millions of jobs have been created since the economy hit bottom back in April, however we still remain more than 10 million jobs behind where we were before the crisis.
We have made tremendous progress in the past few months, and things continue to improve. However, many households continue to face financial challenges so the prospect of a big gap between now and another round of stimulus is worrisome as many sectors are poised for additional layoffs. Fortunately, real estate remains the bright spot and is expected to continue to be over the next few months.