California’s housing market continues its upward trend with an uptick in both closed and pending sales last week. In addition, the number of homeowners in forbearance dipped last week. However, the U.S. lost jobs in December for the first time since the recovery began, business confidence dipped slightly, and the public health crisis has presented us with our most challenging days yet. 

California Home Sales Accelerate in January: For the past 3 weeks, closed sales in California have been rising by more than 30% compared to early 2020 levels. Despite declining inventory and rising challenges on the public health front, nearly 10,000 homes have already closed through last weekend. In addition, the market remains very competitive with days on market hovering near historic lows through the first two weeks of the year and fewer properties closing below asking price.

Pending Sales Suggest the Market Will Remain Strong into February: Pending sales increased last week in every region of the state. After downshifting over the New Years holiday, nearly 4,000 properties went pending last week, which will result in more double-digit growth in closed sales during the second half of the month and into February. With the exception of the Bay Area, which saw pending sales rise by 7.4% last week, the rest of the state experienced a double-digit increase.

REALTOR® Optimism Surges in New Year: There has been a noticeable uptick in the percentage of California REALTORS® that expect sales, prices, and listings to go up in the coming weeks. Although they were down slightly from the week before, the three-week moving average shows that REALTORS® have grown more optimistic about the market in recent weeks. 

Interest Rates Return to All-Time Low Level: After rising slightly the week before, the typical rate on a 30-year fixed rate mortgage fell back to 2.65% last week. This is the lowest level since Freddie Mac began recording interest rates in the early 1970s. This has resulted in increased purchasing power for consumers which is likely fueling both the uptick in pending sales last week as well as the acceleration in home prices over the past few months.

Some Signs of a Modest Slowing in Mortgage Applications: Although the market data remains strong, the mortgage applications have begun to grow more slowly in recent weeks. Although new purchase applications were up by more than 10% last week, they rose by just 3% the week prior and both represent a marked deceleration from the 20-30% pace we enjoyed through most of December. PEAD form filings in December also showed a modest slowing, which could indicate slower growth in pending sales this month, which could mean slower growth in March and April.

Continuing Unemployment Increases in California: Despite a booming housing market, the ongoing public heath crisis and consequent economic restrictions continue to take their financial toll on families and households. The number of workers on either regular unemployment insurance or pandemic unemployment assistance rose to more than 3 million in California again last week. This still represents significant progress from the peak during the summer of more than 6 million, but it also underscores the ongoing headwinds on the road to recovery.

New Cases Plateauing, but Deaths at Highest Levels Yet: Fortunately, the number of new cases of coronavirus appear to have levelled off at between 50,000 and 60,000 per day over the past 10 days. However, the number of daily deaths set new records over the weekend with nearly 700 Californians dying on Saturday alone. Not only has this created a devastating human toll, it will also mean ongoing economic restrictions until the vaccines are broadly distributed, which will have implications for the rental and ownership side of the housing market.