A look at how real estate is faring across California

Courtesy California
Association of Realtors

The broader economy continues to improve and create a positive outlook for the remainder of the year.

As the public health cri sis fades and the number of Californians that have been vaccinated approaches the number needed for herd immunity, the economic impacts are following closely on their heels.

The service sector is showing signs of life with new jobs at bars and restaurants. Spending on tourism, travel, hotels, and entertainment (some of California’s biggest economic strengths) is on the rise, and rates have held steady for the time being.

We did see some further moderation in buyer demand, however, as home prices for both new and existing homes, continue to rise at a double digit pace causing some potential consumers to become discouraged.

New home sales suffer as lumber prices remain high: New home sales fell by 5.9% nationwide in April. Not only was this trending down from the first quarter of the year, but it was also significantly below our expectations.

Strong home sales early in the recovery have exhausted inventory and skyrocketing lumber prices have prevented a more robust resurgence in new construction activities.

However, rates remain low and demand is only increasing as the economy begins to reopen, so new home prices are growing by more than 20% on an annual basis.

Mortgage applications decline after 52 consecutive weeks of growth: Mortgage applications began growing on a year-to-year basis at the end of May. Since then, they enjoyed a full year of uninterrupted, consecutive growth as low rates, increased flexibility, and a structural shift in the need for housing drove the percentage of first-time buyers in the market to a decade high.

That streak came to an end last week as the number of new purchase applications dipped by 4%. The purchase index is still relatively high, but it is no longer running quite as hot as it was at the end of 2020.

Stock market continues to outpace earnings: In the recent GDP revisions, data was released for corporate profits during the first quarter of 2021. Profits rose solidly on a year over year basis.

However, the value of the stock market, as measured by the market cap of the Wilshire 5000 Index of publicly traded companies in the U.S., has risen even faster. At the end of the first quarter, the market was valued at roughly 19 times current profits.

That doesn’t beat the all-time high of nearly 23 times during the dot-come bubble of 2000, but it is significantly higher than the 11-times range that has been the upper bound in 139 of the 201 quarters since 1971 (70%) suggesting that the market is not being driven purely by earnings.

Leading the way in California real estate for more than 110 years, the California Association of Realtors (www.car.org) is one of the largest state trade organizations in the United States with more than 200,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.