San Francisco Bay Area Market April 2024 Insights

Mortgage rates eased further last week before rising slightly in the past couple of days. Recent economic reports indicate that consumer inflation is back on a downward trend, and retail spending has slowed more than expected. Although more than a few reports will be needed to justify rate cuts by the Fed, the new data offers hope that the central bank might still lower rates in their upcoming July or September meeting. Meanwhile, the California housing market started the spring homebuying season on a positive note. April home sales at the state level increased moderately from the previous month and were up compared to the same month last year. The statewide median price reached a record high. Housing supply also improved, with new active listings increasing by double digits from a year ago for the fourth consecutive month.

April Consumer Price Index Offers Hope for Fed Rate Cut

The latest inflation report reveals a slight easing in overall price growth for April, with core inflation reaching its lowest level in three years. The headline Consumer Price Index (CPI) increased by 0.3% month-over-month and was 3.4% higher than a year ago. While shelter costs remained a primary contributor to the CPI increase, stable food prices helped counterbalance rising gas prices. Core CPI, which excludes food and energy, rose by 3.6% year-over-year, marking the slowest growth pace in three years. These results align closely with expectations and suggest that the Federal Reserve might consider a rate cut, maintaining hope for future economic adjustments.

Softer Retail Sales Indicate Spending Fatigue

American consumers spent less than anticipated at the beginning of the second quarter, with retail sales in April remaining flat month-over-month but rising 3.0% year-over-year. This flat monthly growth represents a significant slowdown from the 0.6% increase recorded in March and falls well short of the expected 0.4% increase. Factors such as Easter occurring in March and Amazon’s Spring Sales Event likely pulled some sales forward, contributing to a 1.2% drop in online spending in April compared to the previous month. This recent deceleration in retail sales may indicate that inflation and high interest rates are beginning to curb consumer spending. However, additional data over the coming months will be needed to confirm a consistent downtrend in spending activity.

Home Sales Rebound in April

The California housing market showed signs of recovery in April, regaining some momentum lost in March. Sales of existing single-family homes in California increased to 275,540 in April 2024, a 3.0% rise from 267,470 in March and a 4.4% increase from 263,960 in April 2023. However, statewide pending sales declined by 4.0% compared to last year due to steadily rising mortgage rates throughout April. This decrease in open-escrow sales suggests that closed sales in May might see a month-over-month and year-over-year slowdown. Nevertheless, with mortgage rates easing since the start of May, more buyers might reenter the market as the homebuying season progresses.

California Median Price Hits New Record High

In April, the statewide median price for existing single-family homes in California achieved a new record high. The median price soared to $904,210, marking a 5.8% increase from March and an 11.4% jump from $811,510 in April 2023. This robust year-over-year growth represents the tenth consecutive month of annual price increases for the state and the highest since March 2022. Notably, this is the first time in California’s history that the statewide median price has surpassed $900,000. With tight inventory conditions and seasonal factors, more record-setting prices are likely before summer ends, continuing to exert upward pressure on home prices.

Housing Starts Improve but Builder Sentiment Declines for First Time in Six Months

In April, the U.S. Census Bureau reported a seasonally adjusted annual rate of 1.36 million housing starts, reflecting a 5.7% increase from March but a slight 0.6% decrease from 1.37 million in April 2023. This rise in construction activity was driven entirely by a significant 30.6% increase in multifamily development. In contrast, single-family starts decreased by 0.4% month-over-month but saw a notable 17.7% year-over-year increase from April 2023. However, this marked the second consecutive month of decline for single-family starts, coinciding with a three-month slip in single-family permits.

Despite the overall improvement in housing starts, rising mortgage rates in April created uncertainty, causing many homebuilders to pause their activities. According to the National Association of Home Builders/Wells Fargo Index, homebuilder confidence fell for the first time in six months, with the West experiencing the most significant drop, where the index fell by 12 points to 36. This renewed volatility in mortgage rates has led builders to become more cautious, adjusting their demand outlook downward for the year.

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