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Stock markets began the year higher - With a renewed sense of optimism, this January was very different than January 2023. With the Fed in the middle of an aggressive rate hike campaign in order to tame inflation, many people felt that a recession was inevitable in 2023. This year, things are different. The Fed made an unprecedented 11 rate hikes in just over 13 months. That pushed the overnight rate from nearly 0% to 5.5% and the Prime Rate, a rate that many business loans are tied to, from 3.5% to 8.5%. In 2024, we now know that we not only did not have a recession in 2023 but also that the economy grew by 2.5% for the year, up from 1.9% in 2022. In fact, after starting the year with almost no growth, the economy grew 4.9% in the third quarter and 3.3% in the fourth quarter as solid economic data kept being released. The Fed has stated that they are done raising rates and plan to begin cutting this year as inflation has come down to more acceptable levels. While we don't expect to see the historic low rates during the pandemic, we expect rates to drop to more affordable levels in the coming years. The Dow Jones Industrial Average closed the month at 38,150.30, up 1.2% from 37,689.40 on December 31, 2023. The S&P 500 closed the month at 4,845.65, up 1.5% from 4,769.89 last month. The NASDAQ closed the month at 15,164.01, up from 15,011.35 the previous month.
U.S. Treasury bond yields - The 10-year treasury bond closed the month yielding 3.99%, up from 3.88% last month. The 30-year treasury bond yield ended the month at 4.22%, up from 4.03% last month. We watch bond yields because mortgage rates often follow treasury bond yields.
Mortgage rates - The Freddie Mac Primary Mortgage Survey reported that mortgage rates for the most popular loan products as of February 1, 2024, were as follows: The 30-year fixed mortgage rate was 6.63%, almost unchanged from 6.61% at the end of December. The 15-year fixed was 5.94%, nearly unchanged from 5.93% at the end of December.
Home sales data for the previous month is released on the third week of the month by the National Association of Realtors and the California Association of Realtors. These are December's home sales figures.
U.S. existing-home sales - The National Association of Realtors reported that existing-home sales totaled 3.78 million units on a seasonally adjusted annualized rate in December, down 6.2% from an annualized rate of 4.03 million in December 2022. The median price for a home in the U.S. in December was 382,600, up 4.4% from $366,500 last December. There was a 3.2-month supply of homes for sale in December, up from a 2.9-month supply last December. First-time buyers accounted for 29% of all sales. Investors and second-home purchases accounted for 16% of all sales. All cash purchases accounted for 29% of all sales. Foreclosures and short sales accounted for 2% of all sales. In 2023, 4.09 million existing homes sold, the lowest level since 1995, while the median price reached a record high level of $389,800. Existing homes include single-family homes, condominiums, townhomes, and co-ops.
California Association of Realtors 2023 existing-home sales report - The California Association of Realtors reported that existing-home sales totaled 224,000 units on a seasonally adjusted annualized basis in December, down 7.1% from a revised 241,700 homes sold on an annualized basis last December. California recorded 257,560 existing homes sold in 2023, down from 342,530 in 2022. That marked the most significant one-year drop in annual sales since 2007. Before 2022, home sales have rarely dropped below 400,000 in decades. Much of the decline was due to a loss of move-up buyers. Usually, about 60% of all sales are people who sell a home and use their proceeds to purchase another. When someone who wants to move has a mortgage rate of 3%, it's challenging to sell it and buy another with a mortgage at a 7% rate. This is because when they own a 2 million dollar home with a $1 million mortgage at 3%, their payment with taxes and insurance is about $4,500 a month. If they put their $1 million in proceeds down on a new 4 million dollar home and obtained a $3 million loan at 6.5% (down from almost 8% two months ago), their payment with tax and insurance would be around $24,000 monthly. That big jump has caused many people to stay in homes that would typically move to a new home. When people put off their move, it reduces the number of homes for sale. There was a 2.5-month supply of homes on the market in December, down from a 3-month supply of homes for sale in November and a 2.6-month supply one year ago. That marked the tightest inventory level in 7 months. Fewer homes for sale, especially in a first-time buyer price range, push prices up for those homes. This is precisely what is happening now. At the same time, homes in the upper ranges of many areas are sitting without the move-up buyers. Those are being reduced and sold for less than they did in 2022. Because there are many more sales in the lower price range than the upper price ranges, the median price at which 1/2 the homes sell for mom and 1/2 sell for less is moving up. The statewide median price for a home in December was $819,740, up 6.4% from a revised median price of $770,490 a year ago. In the field, we are not seeing home prices increase in the upper price ranges the way we are witnessing the first-time purchaser home prices jump.
The graph below shows sales data by county in Southern California.
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