Economic & Market Update February 9th 2024
Key Weekly Economic Indicators
Economic Overview:
This past week has been a rollercoaster for Wall Street, marked by significant fluctuations influenced by Federal Reserve announcements and unexpected job market data. The week concluded with the Dow Jones Industrial Average and the S&P 500 reaching record highs, reflecting a complex interplay of economic signals.
Federal Reserve’s Stance:
Fed Chairman Powell’s decision to leave interest rates unchanged, coupled with indications that a rate drop in March is unlikely, initially sent stocks lower. However, the landscape quickly shifted with the release of employment data.
Employment and Job Market:
An initial estimate by ADP suggested a slowing job market with only 100,000 new jobs created in January, buoying investor optimism for potential rate cuts. Yet, this was upended by the official jobs report, which revealed a surprising surge of 353,000 new jobs – nearly double what analysts had anticipated.
Market Reactions:
This unexpected job growth spurred bond yields and mortgage rates to rebound from their yearly lows, with stock markets rallying for two consecutive days. The Dow closed at 38,654.42 (up 1.4% for the week), the S&P 500 at 4,958.61 (up 1.4%), and the Nasdaq at 15,628.95 (up 1.1%).
Interest Rates and Mortgage Trends:
- The 10-year treasury bond yield decreased to 4.03%, with the 30-year bond yield at 4.22%.
- Freddie Mac reported the 30-year fixed mortgage rate at 6.63% and the 15-year fixed rate at 5.94%.
Southern California Real Estate Market Impact
Housing Affordability Crisis:
The fourth quarter of 2023 saw California’s housing affordability remain at a 16-year low, with only 15% of households able to afford the median-priced home at $833,170. This stagnation in affordability is attributed to elevated borrowing costs and a persistent shortage of available homes.
Income Requirements and Condo Affordability:
- To afford a median-priced single-family home, a household would need an annual income of $222,800.
- The affordability for condos and townhomes was slightly better, with 22% of buyers able to afford the $650,000 median price, requiring an annual income of $174,000.
Statewide and National Comparisons:
- Nationwide, 35% of households could afford a median-priced home at $391,700, necessitating an annual income of $104,800.
- Housing affordability varied significantly across counties, with Lassen County being the most affordable and Mono, Monterey, and San Luis Obispo Counties among the least.
Economic Insights and Real Estate Forecasts
The juxtaposition of a robust job market against the backdrop of high interest rates and affordability challenges outlines the complexities facing the California real estate market. Despite a temporary dip in interest rates during the fourth quarter, the economic resilience highlighted by recent job growth suggests that the Fed may delay rate cuts, maintaining pressure on affordability.
As we navigate through 2024, the evolving economic landscape, characterized by its potential impact on housing affordability and market dynamics, will be crucial for both buyers and sellers in Southern California and beyond. The balance between job growth, interest rates, and housing supply will continue to define the trajectory of the real estate market in the upcoming months.
Market Snapshot for Beverly Hills, CA
