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Real Estate:

2023 Witnesses Slowest Existing Home Sales Pace in Three Decades

Sales of previously owned homes in the United States hit a decades-low point last year due to high interest rates and soaring home prices, creating a challenging affordability landscape. Year-over-year sales dropped by 6%, falling below economists' predictions. The National Association of Realtors reported a 1% decline in existing home sales last month, reaching a seasonally adjusted annual rate of 3.7 million—the lowest since August 2010. The median home price rose by over 4% year over year, marking six consecutive months of annual gains and reaching a record high of $382,600 in December.

The data underscores the difficulty faced by first-time homebuyers in 2023, grappling with a combination of tight inventory, rising prices, and elevated mortgage rates. Despite high demand, the scarcity of listings constrained transactions, with potential buyers struggling to enter the market. On an annual basis, existing home sales plummeted to 4.09 million, the lowest level in 30 years and 19% lower than in 2022.

Comparisons with the 1990s highlight the more favorable conditions for first-time homebuyers during that period. The NAR noted that in the 1990s, home sales were around 3.5 million, with more room for inventory growth, whereas in 2023, the market faced a shortage of listings. Additionally, the share of first-time buyers in the 1990s was closer to historic norms, making up 42% of the market, compared to under 30% in 2023.

The struggle for entry-level buyers was reflected in the sales data, showing significant declines in affordable homes' sales while higher-priced homes saw an increase. Sellers held firm on prices, contributing to year-over-year declines in resale activity across all regions. The shortage of inventory continued to exert pressure on home prices.

Despite a slight uptick in new listings in January, inventory levels remained below pre pandemic levels. The imbalance between demand and supply is expected to persist into 2024, as homeowners with low mortgage rates may be hesitant to move. While lower mortgage rates in December provided some relief, the tight inventory situation is likely to persist, contributing to a demand-supply imbalance in the housing market throughout 2024.

California:

California's Dream for All Program Relaunches with Lottery for First-Time Homebuyers' Down Payment Assistance

California to Allocate Additional $250 Million for First-Time Homebuyers' Down Payment Assistance, Introduces Changes to Promote Diversity

California plans to disburse an additional $250 million in down payment assistance for first-time homebuyers this spring, building on the success of the California Dream for All loan program. The program, which saw its $300 million budget depleted in just 11 days last year, is being adjusted to address concerns about funds going to those already well into the home purchase process. The new round maintains the "shared appreciation" lending model, offering first-time buyers funds for a down payment, with repayment tied to the home's appreciation upon resale.

To avoid a frenzied rush, the California Housing Finance Agency will replace the previous first-come, first-served model with a lottery system. Homebuyers will have until April to initiate their applications, with a lottery opening in early April. Between 1,700 and 2,000 lottery winners will receive vouchers, allowing them 60 days to use the funds for a home purchase.

The extended preparation period aims to assist potential homebuyers who may be uncertain about purchasing without state aid. The program targets individuals with a steady income and a credit score above 660, providing an opportunity for those who need time to work on their financial profile. The agency plans to allocate vouchers based on each region's share of the state's households to prevent geographical disparities observed in the previous round.

To enhance the program's impact, new rules include a requirement for at least one homebuyer in each transaction to be a first-generation homebuyer. The income eligibility threshold has been lowered from 150% to 120% of the area median income, with an outreach campaign planned for February, focusing on Southern California and the Central Coast. The state aims to inform potential beneficiaries through various channels, including laundromat flyers, text messages, and advertisements in Spanish-language radio and Black newspapers.

Realtors hope that the changes will prioritize those who genuinely need assistance. The program's survival amid budget challenges underscores its importance, providing hope for aspiring homeowners in California. Interested individuals can visit the California Dream for All website or join CalHFA's homebuyer email list for updates and application details.

Mortgage:

Slight Recovery in Mortgage Rates Marks the Start of the New Week

Mondays in January have been scarce in the bond market, responsible for dictating interest rates, mainly due to the holiday calendar. Today's market activity could easily be mistaken for another holiday, given the minimal trading volume and subdued volatility. It marks the year's lightest volume day and the most tranquil in terms of volatility.

Fortuitously, positive overnight market movements in Asia and Europe set a promising tone. This enabled the average mortgage lender to slightly decrease rates from Friday's levels, which were the highest in over a month at that time. Although today's average rates are the lowest since last Tuesday, the overall narrow range in recent days means they aren't significantly different from other days within that period.

The potential for more substantial changes heightens towards the end of the week, particularly as the middle of the following week approaches, bringing the next Fed announcement and several crucial economic reports.