April 22, 2024 – Home sales activity pulled back in March as mortgage rates continued to rise in the past few weeks. With inflation remaining sticky and above the Fed’s policy target range, the housing market   had   a   slow   start   to   kick   off   the   spring   homebuying   season.   Despite   the   headwinds, REALTORS® remain upbeat and believe the market will continue to improve in the later part of the season. The latest improvement in housing supply and the increase in competitiveness in the market, indeed, offer encouraging signs that the market could see better days in the second half of the year when mortgage rates begin to come down.   

Home sales pull back as mortgage rates climb: The California housing market lost some of its momentum in March, as sales fell on a year-over-year basis for the first time in three months after registering back-to-back increases in January and February. Sales of existing single-family homes in California totaled 267,470 on a seasonally adjusted annualized rate in March 2024, down 7.8% from 290,020 in February and down 4.4% from 279,700 in March 2023. The statewide pending sales year-over-year growth climbed back into positive territory in March, with open- escrow sales up 1.1% from the same month of last year. With inflation remaining sticky, however, mortgage rates could stay higher for longer in the short term. As such, sales activity will likely stall in April but could pick back up after the market digests the latest set of inflation news.

California median price reaches highest level in seven months: The statewide median price recorded another strong year-over-year gain in March. California’s median home price was $854,490, up 6.0% from February and up 7.7% from an upwardly revised $793,260 in March 2023. The modest year-over-year gain was the ninth straight month of annual price increases for the Golden State. It was also the eleventh time in the last 12 months that the median price for an existing single-family home exceeds the $800,000 benchmark. With home sales holding up better in the high-end markets than their more affordable counterparts in the last few months, the change in the mix of sales has been playing a supportive role for the increase in the statewide median price. With seasonal factors and tight inventory expected to continue to put upward pressure on prices, California’s median price should climb further in the next couple of months.

REALTORS®’ insights offer hope for spring homebuying season: The latest REALTORS® Confidence index released by the National Association of REALTORS® suggests that the housing market will continue to improve, albeit slowly, from last year. Findings from March’s survey indicate   that   26%   of   REALTORS®   who   responded   to   the   survey   expected   a   year-over-year increase in buyer traffic in the next three months, a dip from 30% in February but a jump from 21% in March 2023. The same number of respondents (26%) also expected a year-over-year growth in seller traffic for the same time frame, unchanged from February but more than doubled from 12% recorded 12 months ago. The housing market remained competitive last month as 60% of respondents said homes listed on the market were sold in less than a month, an improvement from 56% recorded a month ago but a decline from 65% in March 2023. On average, listings received 3.1 offers in March, as compared to 2.7 offers in the prior month and 3.2 offers in the prior year. 

March residential construction falls sharply as builders fear rate cut delay: The U.S. Census Bureau reported a seasonally adjusted annual rate of 1.32 million units of housing starts in March, a drop of 14.7% from February and a dip of 4.3% from 1.38 million in March 2023. Single-family starts declined on a month-over-month basis by 12.4% from February but jumped 21.2% year-over-year from 12 months ago. Harsh weather and the early Easter holiday might have accounted for some slowdown in construction activity in March, but sticky inflation and concerns about a higher-for-longer interest rate environment also contributed to the pull-back in housing starts last month. Building permits in March also retreated from the prior month with a drop of 4.3% but continued to climb year-over-year by 1.5%. Single-family permits fell 5.7% last month and had their monthly decrease in 13 months. The renewed concerns about the Fed’s rate movement and the recent volatility in rates are putting builders on stand-by mode, as more of them have become less optimistic and may have adjusted their demand outlook downward for the year. 

Retail sales exceed expectations in March: Consumers spent more than expected at the end of the first quarter and had the largest monthly increase in over a year. Retail sales in March rose 0.7% month-over-month and had an increase of 4.0% year-over-year, due partly to an early Easter that pulled some spending into March that might have occurred in April in other years. Higher gas prices and auto sales lifted consumer spending last month, but a surge in e-commerce likely as a result of Amazon’s “Big Spring Sale” also contributed to the increase in March. The solid gain   in   retail   sales   suggests   that   consumers   are   still   not   ready   to   pull   back   yet,   which   is   a promising sign for economic growth, but could also create another speedbump for the Fed’s rate cut plan. 

Note: The weekly market minute report is updated every Monday by 6:00 PM PST.