The Federal Reserve lowered the fed funds rate by 50 basis points last week, marking the first cut since 2020. Although the market anticipated this move, mortgage rates did not immediately decline. However, the Fed’s actions and projected future rate reductions are expected to benefit both homebuyers and sellers in the coming months. With mortgage rates close to their lowest in two years and home prices softening, housing activity may increase this fall as consumers take advantage of lower borrowing costs.
This was the Fed’s first rate cut in four years, with all 19 officials unanimously supporting it. While most favored a 50-bps cut, one governor preferred a 25-bps reduction. With a focus on the labor market, more cuts are anticipated over the next 15 months, including a projected 100-bps decrease by 2025. Although interest rates rose slightly post-announcement, a downward trend is likely if inflation continues to ease and job growth slows.
Housing Sales: In August, housing demand declined, resulting in the lowest closed sales in seven months, despite a 4-month-low in the average 30-year fixed-rate mortgage. Existing single-family home sales in California dropped 6.3%month-over-month but rose 2.8% year-over-year. Pending sales showed strength, surpassing last year’s levels for the second month in a row, which should support a solid increase in closed sales for September.
Home Prices: California’s median home price grew 3.4% year-over-year in August, the smallest increase since September of last year. Monthly growth was just 0.2%, the lowest July-to-August rise since 2008. The impact of higher-priced market segments on statewide price growth has diminished. Home prices may soften as the market heads into the off-season but are expected to maintain year-over-year growth.
Retail Sales: U.S. retail sales in August rose 0.1%, exceeding expectations for the second month in a row, and increased 2.1% year-over-year. Despite beating the consensus forecast, several retail categories, including department stores and grocery stores, experienced declines. Non-store retailers and miscellaneous store retailers saw increases. The data suggests consumers might be reaching their spending limits, indicating a potential slowdown in the economy ahead, though a dramatic pullback is not currently forecasted.
Home Building: Residential construction in the U.S. rebounded in August, with housing starts jumping 9.6% from July, reaching a seasonally adjusted annual rate of 1.36 million units. This increase reflects improved builder sentiment from lower mortgage rates and a decrease in disruptions caused by Hurricane Beryl. Single-family starts surged 15.8%, reversing five months of decline. However, future construction momentum is uncertain, as the increase in existing housing supply from falling rates may dampen new home demand.
Home Building: U.S. housing starts surged 9.6% in August, driven by lower mortgage rates and fading disruptions from Hurricane Beryl. Single-family construction spiked 15.8%, but sustainability is uncertain as existing home supply increases.
