The economy posted strong signs of further improvement last week with just shy of 1 million new jobs created in July and the lowest level of unemployment since the onset of the pandemic.

In addition, interest rates fell back below 2.8% last week and recently released construction data shows that California is on track to build at least 30% more homes this year than it did in 2020. However, the public health numbers in the state continue to deteriorate at a rapid pace. In addition, buyers continue to become discouraged about housing even as new listings finally start to come online so hard work remains the mantra as the market continues to normalize.

Strong Jobs Report Despite COVID Rebound: Although California will not report on July jobs for several weeks, we can be optimistic because the U.S. jobs recovery last month accelerated with 943,000 new jobs and a post-crisis low for unemployment of 5.4%. That was the strongest month for job creation since last August and marks the second consecutive month with more than 900,000 new jobs. However, rising Coronavirus cases are likely to stifle growth in coming months and California has had two weeks in a row with over 100,000 new unemployment claims filed so the recovery still has a long way to go.

Interest Rates Fall a Bit More: Freddie Mac reported that the typical rate on a 30-year fixed-rate mortgage fell to 2.77% last week from 2.80% the previous week. This follows the 10-year Treasury, which also declined to 1.21% last week. Overall, rates are now back to their lowest levels since February and are likely to remain relatively subdued as the effects of rising COVID cases are likely to bolster demand for Treasuries while also causing the Fed to be more cautious about taking too aggressive an approach to monetary policy on what may ultimately prove to be transitory inflation pressures.

California Building Permits Up 32% Through June: So far, California has permitted nearly 60,000 new residential units through the first 6 months of this year. Single-family permits are leading with a 36% increase, but multi-family units are rising by 27% on a year-to-date basis as well. Despite supply chain disruptions and significant increases in the cost of building materials, strong housing demand, Proposition 19, and a renewed passion for homeownership have lured builders back into the market to increase production after a relatively lackluster year in 2020.

Buyer Fatigue Intensifies in July: The number of California consumers that felt it was a good time to purchase a home fell to an all-time low of just 17% last month. This coincides with a new all-time high price in California of almost $820,000 and demonstrates the downside of having a market where new listings cannot keep pace with home sales for such a prolonged period. Rising prices, fierce competition for available homes, and most transactions closing above asking price continues to take its toll on would-be homebuyers in California. Combined with a modest uptick in new inventory and the pressure on each individual listing has also helped to normalize the market—45% of members had 3 or fewer offers on their last sale compared to less than 30% of REALTORS® back in May.

Mortgage Applications Down for 11th Consecutive Week: The number of new purchase applications ended July down 18% from the same week last year. This marks the 11th decline in a row on a year-to-year basis. However, at a value of 273, the index is only slightly behind the 2020 average of 283 and still well ahead of the 2019 annual average of 255. Low rates are helping to maintain demand at relatively high levels, but growth has clearly decelerated.

COVID Numbers Continue to Deteriorate in California: The number of new COVID-19 cases in California rose above 14,000 on Friday as the pace of infection rises. The positivity rate hit its highest level since February with nearly 7% of tests resulting in a positive result while the number of tests is also rising. Hospitalizations are also at their highest levels since early this year. Meanwhile, vaccinations in the state continue to hover in the low-60% range after an initial surge during the spring. Many parts of the state have re-implemented mask mandates and we expect the guidance to continue to evolve over the near term as the situation changes.