CALIFORNIA ASSOCIATION OF REALTORS WEEKLY MARKET MINUTE
August 22, 2022 – Housing sentiment continued to sink for both the supply side and the demand side as market’s buying conditions remained sour.
Not only did homebuilders scale back in production as suggested by the dip in building permits, but potential homebuyers have also hit the brake hard as market uncertainty and high costs of borrowing lingered on. Closed sales for existing single-family homes have taken a beating as the market has shifted in response to the recent surge in interest rates, while pending sales suggested that the market could remain soft in August.
The pace of sales declines is expected to decelerate in the coming months, however, as rates continue to stabilize, market volatility begins to subside and supply conditions further normalize.
A bounce back in California’s employment situation, was perhaps the silver lining in last week’s news, as it hints on an economy that could remain resilient in the third quarter, despite a back-to-back decline in GDP in the first and second quarter of the year.
Rising interest rates and affordability crunch drag down July home sales and prices: Housing demand in California cooled further in July as the effects of rising interest rates and high home prices hit would-be homebuyers, dragging home sales below the annualized 300,000 benchmark level for the first time since May 2020. Existing single-family home sales totaled 295,460 in July on a seasonal adjusted annualized rate, down 14.4% from June and 31.1% from July of last year. The statewide median home price was $833,910, down 3.5% from June and up 2.8% from July 2021.
While high home prices and rising interest rates depressed housing affordability and in turn dampened demand in the midst of the peak home-buying season, buying opportunities remain in the coming months for those who have been waiting on the sideline as more listings become available, competition continues to cool off and rates begin to stabilize.
Homebuilders’ sentiment turns negative: According to the National Association of Home Builders/Wells Fargo Housing Market Index, homebuilders have become more pessimistic as their sentiment towards the housing market dropped another 6 points in August to 49. This marked the eight straight decline in the index and the first time it dipped below 50 since June 2014, excluding a very brief plunge at the start of the Pandemic. Of its three components, current sales conditions saw the largest drop by 7 points, though sales expectations in the next six months and buyer traffic also declined by 2 and 5 points, respectively. Homebuilders’ confidence has deteriorated as buyer demand continued to be diminished by affordability constraints.
Despite higher costs for land, labor, and buildering materials, about 1 in 5 builders in August reported lowering prices by about 5% in the past month in an effort to increase sales or limit cancellations.
Housing starts decline sharply in July as building material prices rise and demand for housing softens: Higher mortgage rates upend residential construction in July with total housing starts falling 9.6% from June and 8.1% from July of last year. Single-family starts declined 10.1%, and while upward revision to starts during June helped take some sting out of July’s sharp decline, single-family starts have now declined for five consecutive months. The pull-back was attributed primarily to higher mortgage rates, which have significantly worsened affordability and caused buyers to hold off on their housing demand.
With building permits declining 1.3% in the latest report, starts will likely fall further in the upcoming months.
California employment improves as hiring rebounds in July:
After a bit of a slump this spring, hiring perked back up in July. California’s employers added a nation’s best 84,800 jobs in July, marking the largest gain since February.
The job gains were broad based but the resurgence in hiring appears to have been driven by a rebound in tech hiring. The state’s unemployment rate dipped to the new low, dropping 0.3% to 3.9% – the lowest level since 1976. While this rebound in hiring is good news for California’s economy, it is also becoming more evident that the labor market is cooling off as job openings fell 212,000 in June. California’s 15.7% drop was by far the largest of any state and brought job openings back down to the lowest level since August of last year.
Don’t hesitate to call The Sierra Lifestyle Team for free evaluations of your home’s value or to tour homes on the market you have an interest in. We are here for you, and Alisa (almost) always answers her cell phone, 530-559-4871.
Refinishing hardwood floors is the remodeling project that pays back the most, recovering the highest percentage of its cost—147%—at resale, according to the 2022 Remodeling Impact Report, a joint study from the National Association of REALTORS® and the National Association of the Remodeling Industry.
Home remodeling projects aren’t only offering a potential boost at resale; they’re also making homeowners happier. Painting a home’s interior, adding a home office, installing hardwood flooring, and renovating closets made consumers happiest, the report shows.
The remodeling boom has continued since the pandemic began as homeowners’ desires to spruce up their homes grow, whether through large house additions or simply small one-room painting tasks.
“Quite often, an added benefit to home renovations is the possibility of an increase in the home’s value, which is a reason why some people remodel,” says Jessica Lautz, vice president of demographics and behavioral insights at NAR. “This is especially advantageous to a homeowner who may be considering selling their house or converting the home to a rental property.”
For the report, REALTORS® provided an estimate of the likely dollar value of various remodeling projects that could add to the value of a home during resale that was compared to National Association of Remodeling Industry remodelers’ estimations of project costs.
Besides refinished hardwood flooring, new hardwood flooring also had the potential for a high recovery at resale, at 118%, as did upgrading the home’s insulation, at 100%, the survey shows.
Among exterior projects, new roofing and garage doors had recovery rates reaching 100% of the project costs, according to the report.
Kitchen upgrades also showed a high potential payback at resale. NARI remodelers estimated an average kitchen remodel would cost about $45,000. But REALTORS® surveyed estimated that $30,000 of that would likely be recovered at resale—a 67% recovery rate.
House Projects That Bring the Most Joy
The survey also identified projects that made home renovators want to remain in their homes and those that brought them an increase in the enjoyment of their spaces. The home remodeling projects that received a “Joy Score” of 10, the top score, were:
- Painting a home’s entire interior
- Painting one room
- Adding a home office
- Hardwood floor refinishing
- Closet renovation
- Insulation upgrades
The Remodeling Boom Continues
Americans spent $420 billion in 2020 on home remodeling. Contractors report greater demand for services and for larger-scale projects, such as remodels of more than one room, according to the 2022 Remodeling Impact Report. Eighty-six percent of consumers reported that remodeling one area of their home then inspired them to remodel other areas of the house.
“The pandemic has changed the way we use our homes, and many of those changes are here to stay,” Lautz says. “As a result, homeowners needed to reconfigure or remodel how they use their home and maximize space.”
Thirty-five percent of homeowners said one of the top motivators for their remodel was to improve their home’s functionality and livability.
Also, 22% of homeowners were motivated to have greater durability in the materials and appliances inside their homes. Fourteen percent were motivated to improve the beauty and aesthetics of their home.
“2022 Remodeling Impact Report,” National Association of REALTORS® (April 6, 2022)
Time to Act: ‘The State of America’s Housing Stock Is Dire’
June 16, 2021
A “once in a generation” response is needed to address the decades of underinvestment and underbuilding in the housing market, according to a report released on Wednesday by the National Association of REALTORS® and the Rosen Consulting Group.
The nation has faced a shortfall of 5.5 million to 6.8 million housing units since 2001.
The report, Housing Is Critical Infrastructure: Social and Economic Benefits of Building More Housing, highlights the causes of housing shortages and offers potential solutions for federal and local level policymakers.
“There is a strong desire for homeownership across this country, but the lack of supply is preventing too many Americans from achieving that dream,” said Lawrence Yun, NAR’s chief economist.
“It’s clear from the findings of this report and from the conditions we’ve observed in the market over the past few years that we’ll need to do something dramatic to close this gap.”
The report calls America’s housing stock situation “dire,” with a chronic shortage of affordable and available homes to support the nation’s population.
“A severe lack of new construction and prolonged underinvestment [have led] to an acute shortage of available housing … to the detriment of the health of the public and economy,” the report notes “The scale of underbuilding and the existing demand-supply gap is enormous … and will require a major national commitment to build more housing of all types.”
Policy recommendations outlined in the report call for lawmakers to remove construction barriers that could help incentivize new development.
Earlier this year, NAR also released a separate report, State and Local Policy Strategies to Advance Housing Affordability, which recommended that lawmakers pursue solutions through fiscal policy measures, policies aimed at increasing the supply of housing, and zoning and permitting policy reform.
“A number of factors from the past 20 years are responsible for the massive housing investment gap we see in America today, but what’s important now is that we find solutions that will get us out of this crisis and provide more stability in future markets,” said Charlie Oppler, NAR president.
He said increases in housing construction not only add much-needed housing inventory but also could add an estimated 2.8 million American jobs and $50 billion in new, nationwide tax revenue. “Additional public funding and policy incentives for construction will very clearly provide huge benefits to our nation’s economy, and our work to close this gap will be particularly impactful for lower-income households, households of color, and millennials,” Oppler said.
“Housing Is Critical Infrastructure: Social and Economic Benefits of Building More Housing,” National Association of REALTORS® (June 16, 2021)
June 14, 2021
Housing has been on the leading edge of economic growth since the recovery began, but several signs show that a hot market is causing the market to moderate earlier than normal.
Closed sales are likely to exhibit high double-digit growth for May and June, but the overall level of home sales is slipping from its decades-high level at years’ end.
Rapid growth in home prices has caused some buyers to become discouraged—even as rates dipped below 3% again. Encouragingly, the number of new listings being added to the MLS each day has finally started to exceed closed sales and C.A.R. is still forecasting at least 10% growth in home sales this year.
Consumer Confidence Hits Post-Crisis High:
Consumer confidence reached its highest level since the onset of the crisis as many get back to work and the economy in many parts of the nation starts to reopen. This is a vital component of overall GDP and more robust main street consumer spending will help to generate additional jobs recovery in the retail and restaurant sectors in coming months.
California Unemployment Claims Drop to Post-Crisis Low:
California ended May with its 9th consecutive week with fewer than 100,000 new claims for pandemic and traditional unemployment insurance. With less than 65,000 new unemployment claims filed, last week also marks the smallest number of claims since March of 2020. As the economy is poised to reopen this week, many of the service sector jobs, which bore the majority of the job losses, are expected to begin to come back as consumers participate more fully in the economy.
Signs of Optimism for the Fall Market:
The number of active listings has started to rise as the number of listings being added to the MLS each day has started to increase. Although total active listings remains depressed relative to 2020 and 2019 levels, there has been more inventory on the market over the past 2 months after reaching a nadir back in March. The number of new listings coming onto the MLS is still down from normal levels, an increase in supply could help would-be buyers who are facing an incredibly competitive market environment and help to sustain an elevated number of home sales.
Rates Dip Slightly as 10-Year Treasuries Moderate:
The average 30-year fixed-rate mortgage (FRM) dipped slightly to 2.96% last week – remaining below the critical 3% threshold. The 10-year Treasury initially rose early last week after a decent jobs report, but began to slide during the second half – hitting just 1.45% to begin this week. However, spreads have widened, which may mean some ongoing softness in mortgage rates for the coming weeks, but the medium-term trend is likely towards higher rates.
COVID Numbers Moving in Wrong Direction as We Approach Reopening:
After several months of ongoing improvement, California’s public health numbers have started to deteriorate again, albeit modestly. The 7-day moving average for new cases remains below 1,000 per day, but it has been rising for the past 4 days consecutively and the raw case volume was above 1,000 over the weekend. The immunization rate has begun to settle in the mid-50s, but varies significantly by county.
Mortgage Applications Post Largest Drop in Over a Year:
The number of new mortgage purchase applications fell 24% last week to their lowest level since January. After growing for 52 consecutive weeks on a year over year basis, new applications first began to decelerate in April. By mid-May, mortgage applications had begun to fall, and dropped by double digits the first week of June. This is consistent with both the C.A.R. and Fannie Mae home purchase sentiment indices released last week, which showed increasing pessimism amongst buyers as prices rise and competition over limited available listings remains fierce.
Cashing Out Amidst Double-Digit Price Growth:
Freddie Mac’s quarterly report on cash out refinancing shows a marked increase in spending from home equity. Nearly $50 billion in home equity was cashed out in the most recent quarter. Some of this is driven by consolidation of other debt at low rates, but the percentage of loans resulting in a principal balance at least 5% higher than the original first mortgage has also risen to nearly 50% of mortgage originations. This still pales to the nearly $85 billion cashed out at the peak of last cycle, but it does represent a sizable shift from just $20 billion a few years ago.
by Mary Cornell
Whether you are an avid hiker or a daily walker there is no shortage of amazing trails and places to walk in Nevada County!
Being a walker myself, some walks that include my dogs, other days a friend or two, or just a solitary walk to get my thoughts together, walking is a great way to stay healthy, strong, and stress-free.
One of our latest trails in Grass Valley that has opened within the past two years is Wolf Creek Trail. It is convenient, close to town, paved, and is wheelchair, and stroller-friendly. Meandering along the Wolf Creek and amid the North Star Mine, it has not only beauty but history. There are 4 trailheads for this trail. One is off of the mine museum’s parking lot, one-off Freeman lane by the Animal Shelter, one-off Freeman Ln, with a path down our “sinkhole” and the other at the Wolf Creek group housing.
I love to walk my dogs at The Nevada County Fairgrounds or around the Lyons’ lake. The fairgrounds are open again for dog walkers, the walk is level, paved and they provide doggie bags. I love that the fairgrounds encourage us, dog walkers, with even a bowl of water for our furry friends.
The Empire Mine State Park trails are awesome, as there are many trails to take, and are popular not only for walkers and joggers but also for horses. Many ways to enter this area and one time we even got lost and came up on Highway 174 without knowing where we were!
There is a trail that comes off of Litton Rd in Grass Valley that meanders up crosses Sierra College Blvd, up around the high school, and ends up at Eskaton off of Ridge Rd. That is a fun, short, and surprising walk.
There are many trails that run alongside a NID ditch (Nevada Irrigation District).
One of the longest and most beautiful is the one that starts at Gracie and ends up at Red Dog in Nevada City. This trail is 4 miles if you take it and double back to the car. It’s level and calming as you walk near water the whole time.
Hirschman’s Pond is just a short scenic walk, starting off of Cement Hill Dr in Nevada City. I love the rock outcropping and the serenity of the pond. You can continue past the pond and walk another couple of miles on this trail, but it does run near the highway for a while, so you have some road noise.
The Independence Trail was once a stunning and awesome path leading to a waterfall and creek where salamanders are abundant. The trail had been built through and using the wooden flumes that were once there for the gold miners to direct the water floor. Unfortunately, in 2020 the fire that swept through also destroyed the flumes and walking bridges.
The Deer Creek Tribute Trail in Nevada City is a little more challenging but well worth it! The trail memorializes the early contributions of the native Chinese people. It’s complete with the Chinese Tribute bridge that highlights the walk.
Alta Sierra has a trailhead at the corner of Dog Bar and Alta Sierra Dr. It is a short uphill trail that crosses the NID ditch, skirts the golf course, and has an amazing large tree that is unique and makes a great photoshoot. If you’ve walked the trail, I’m sure you know the one!
If you head on down the hill towards Penn Valley, you will find the Buttermilk Bend Trail at the Yuba River near Bridgeport. This is a great springtime hike, as there are beautiful wildflowers all around and labeled for you to see their names. It rambles above and follows the beautiful Yuba River. It is a breathtaking hike.
Further down the road on the way to Beale’s Airforce Base, there is a trail leading to Fairy Falls. This trail is best taken in the spring as you are walking through large open fields among the cows and very little shade. Finally getting to the waterfall, you will find it a great spot to picnic.
These are just a very few of the great hikes and walks in Nevada County that I have enjoyed. There are plenty more that I’ve yet to mention!
So get out there, explore our beautiful Gold Country and breathe the mountain air!