In 2023, the Stockton housing market faced a challenging year due to tight supply and high borrowing costs, impacting supply and demand dynamics negatively. However, a glimmer of hope emerges as inflationary pressures ease and a softer economic outlook hints at potential interest rate cuts in 2024, promising a housing market recovery. With interest rates reaching a 7-month low late last year, American sentiment towards the market has improved, hinting at increased market activity in early 2024. Meanwhile, home prices are expected to maintain their upward momentum, with a mid-single-digit year-over-year growth rate projected for the statewide median price in the early part of 2024.
California's Stagnant Home Sales in 2023
California witnessed stagnant home sales in December 2023, remaining near a 16-year low reached in November. The decline in home sales continued for the 30th consecutive month year-over-year. For the entire year, 2023 recorded an annual sales level of 257,630, marking a significant 24.8% decline from the previous year's sales level of 342,530. This annual sales drop was the most substantial decline in existing home sales in California since 2007. Despite a sharp moderation in rates at the end of 2023, the rebound in home sales is expected to be modest in the upcoming months.
Tight Supply Persists, but Hope for More Inventory in Spring
The shortage of available homes remains a prevalent issue, with active listings at the state level declining year-over-year for nine consecutive months. New active listings have also dipped for the 18th month in a row but with a milder annual decline. In December 2022, twenty-four of the fifty-one counties tracked by C.A.R. saw an increase in new active listings, signaling a potential shift. With mortgage rates staying below previous peaks, the market could see more for-sale properties listed in the first quarter of 2024.
Housing Starts Dip but Builder Confidence Soars
In December, the U.S. Census Bureau reported a slight dip of 4.3% in the seasonally adjusted annual rate of housing starts compared to November. However, there was an encouraging increase of 7.6% from December 2022. Single-family starts also saw a monthly dip but registered a significant 15.8% increase compared to the previous year. This drop was partly attributed to weather conditions, as a warm November may have pulled some construction forward. Building permits, on the other hand, inched up slightly, indicating positive signs. Builder sentiment continues to improve, with lower mortgage rates motivating more potential homebuyers. The National Association of Home Builders’ Housing Market Index (HMI) reached its highest level since September 2023, suggesting potential growth in housing construction in the coming months.
Retail Sales Exceed Expectations but a Cautionary Note
In December 2023, consumers exceeded expectations, with retail sales up 5.6% year-over-year. This robust growth was observed across various sectors, with Restaurants and Bars, Electronics and Appliances, and Health and Personal Care experiencing significant surges in spending. The "buy now, pay later" financing option gained popularity during the holidays, contributing to substantial online spending. However, there is a cautionary note, as bills come due for shoppers who borrowed forward, potentially leading to a pullback in consumer spending in the months ahead.
A Positive Surge in Consumer Sentiment
Consumer sentiment, reported by the University of Michigan, reached its highest level since 2021, reflecting growing optimism about the economy. The sentiment index saw a remarkable 9.1 percentage point increase, the largest monthly jump since 2005. On a two-month basis, the index rose by 29%, marking the most significant two-month increase since 1991. Compared to the all-time low in June 2022, the January 2024 reading was 60% higher. As inflation cools and the labor market remains stable, consumer sentiment has surged. Inflation expectations for the upcoming year also declined, signaling positive economic indicators. However, this surge in consumer sentiment may indicate that interest rates could remain higher for an extended period.
In conclusion, the Stockton real estate market, while facing challenges, is poised for a potential recovery in 2024. Positive signals from reduced inflation, improving consumer sentiment, and builder confidence suggest a brighter outlook for the housing market in Stockton.
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