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Are cheaper mortgages bad news for California’s housing market?

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Are cheaper mortgages bad news for California’s housing market?


Falling mortgage rates should come with a warning label stating: “Be careful what you wish for!”

This summer’s cheaper home loans ignited real estate buzz suggesting California’s two-year homebuying slump may be nearing its end.

The Federal Reserve’s lengthy battle against inflation – fueled by higher interest rates – helped make California homebuying nearly impossible for most house hunters. But mid-2024’s moderating cost of living, plus overall economic lethargy, has already trimmed mortgage rates off 20-year highs. Come September, the Fed is expected to begin cutting its benchmark rates.

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Yes, lower rates mildly prune California’s huge affordability challenges. Some industry insiders even speculate these savings could create a rush to buy, forcing California prices even higher.

But the same cheaper mortgages that lead to a “buy now” narrative are often signals of economic trouble. Remember, interest rates typically fall when the business climate cools.

By the numbers

To contemplate the mix of rates and pricing, I filled my trusty spreadsheet with these stats dating to 1977: the average 30-year mortgage from Freddie Mac, California home price data from the Federal Housing Finance Agency, and what you may think is an odd number: the state’s unemployment rate from the Bureau of Labor Statistics.

Consider what we learn when slicing history into 12-month periods, simply based on whether mortgage rates got pricier or cheaper over the past 47 years.

When mortgage rates grew over a year’s time, California home prices averaged 10%-a-year gains.

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Then look at what happens when mortgage rates fell. California prices gained only 4.4% on average. Yes, less than half.

Now, let’s not blindly cheer rising rates. Think about a theoretical buyer’s house payment using math that combines these pricing patterns and rate swings.

When rates rise over a year, estimated California house payments jumped 21% on average. Pricier homes plus pricier loans is a painful bite to the wallet. But buyers seem willing to pay up.

Conversely, payments in times of falling rates dropped by 2.6% a year on average. So it’s the cheaper money that creates whatever meager affordability exists in California.

Now, these results may seem illogical as pictured through a traditional real estate lens. But take a broader view of the economy and ponder the cyclical health of California’s job market.

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When mortgage rates rose during the past half century, the statewide unemployment was falling by 0.7 percentage points per year on average. Basically, interest rates rise when times are good and bosses are hiring.

Unfortunately, when the economy gets too hot – such we saw in 2021 to 2023 – the bond market and/or the Fed may play Grinch, pushing up interest rates, and spoiling the economic party.

Contrast that pattern to how the economy performs when loan rates decline during the past half century: California joblessness was increasing by 0.3 percentage points. So fewer jobs, less demand for all sorts of goods and services – and a Fed more willing to help.

Bottom line

Don’t overthink housing’s sometimes myopic data. It’s really about real estate’s three pillars: “Jobs. Jobs. Jobs.”

In the past 47 years, when jobs are scarce and unemployment rises in a year, California home prices average 2% gains. When unemployment drops, prices rise 9%.

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Please note that California joblessness has been above 5% for 10 months, after reaching an all-time low of 3.8% in August 2022.

You see, successful house hunting requires not only a paycheck – but confidence that you’ll remain employed. And cheaper mortgages frequently come with a weaker business climate and depressed consumer confidence.

That can make California house hunters think twice about paying top dollar for housing. It’s a key reason why you see weaker pricing when rates are down.

Of course, every cycle is different. Maybe the odd post-pandemic real estate market will act unlike the statistical norms shown by this math.

Ponder history’s extremes. Prices jumped 29% with lower rates in the year ended in September 2004. But cheaper mortgages did not prevent a 23% drop in the 12 months ended September 2008.

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So summer 2024 might be a “buy now” moment with tumbling rates helping to push California home prices skyward. But the true catalyst would be an economy that nails an Olympic-quality soft landing with few job losses.

My spreadsheet also tells me that since 1977 when mortgages got cheaper in a year, California home prices rose 67% of the time. Not bad odds.

But when rates were rising, price gains came 85% of the time.

Postscript

The economic fallout of cheaper mortgages has modestly varied in the past half century, depending on the size of the rate drops. Ponder these California examples of one-year dips …

Rates down half-percentage-point or more: Home prices rose 3.6% in 12 months on average in these situations. Again, a weak economy, as California’s unemployment rate averaged a 0.9-point increase in a year.

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Off three-quarters-point or more: Prices up 2.5%. Unemployment up 1.1 points.

Off 1 point or more: Prices rise 4.2%. Unemployment up 0.6 points.

Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com

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California

California Roots Threaten JuJu Watkins’ NCAA Road to Rivaling Caitlin Clark

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California Roots Threaten JuJu Watkins’ NCAA Road to Rivaling Caitlin Clark


Ever since Caitlin Clark left the NCAA to set records in the WNBA, the hunt for the next generational basketball talent has intensified. Among the emerging stars, JuJu Watkins stands out with her electrifying performances for USC and record-breaking milestones. But while her game dazzles on the court, her California roots and unique circumstances create hurdles that may hinder her quest to rival Clark’s legendary NCAA career.

On the latest episode of Fearless with Jason Whitlock, Whitlock tackled the issue, highlighting the contrasting environments between Clark’s Iowa and Watkins’ Los Angeles.

Well, Caitlin Clark was in Iowa in the middle of nowhere. She wasn’t in the entertainment capital of the world. She wasn’t in a city that had 75-degree weather year-round and open beaches. She went off or she grew up in and continued to play in a little isolated area of the country where people are starved for entertainment. And so she built a huge following right there in the state of Iowa, her home state,” he said.

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The deeper issue, according to Whitlock, is the cultural and entertainment saturation of Los Angeles, where sports often compete with numerous distractions for attention. In contrast, Clark thrived in a basketball-centric environment, with little competition for local and statewide support. While Watkins’ environment may pose unique challenges, her talent remains undeniable.

She recently made history as the fastest Power Five player in women’s college basketball to reach 1,000 career points, accomplishing the feat in just 38 games—two fewer than Clark’s record. With season averages of 24.8 points, 5.8 rebounds, and 3.8 assists on 46.2% shooting, Watkins is unquestionably a dominant force. Yet, as Jason Whitlock put it, the question persists: Can she cultivate the same level of national adoration that Clark commanded?

Balancing brilliance: Can JuJu Watkins thrive amid criticism and California’s spotlight?

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Adding to the debate, Rachel DeMita voiced concerns over how USC is managing Watkins’ playing time on her own podcast. “I don’t think that’s what JuJu needs for the development of her game,” DeMita said, suggesting that keeping Watkins on the court for extended minutes might be more about stat-padding than fostering her growth as a player.

via Imago

Such a strategy could also increase her risk of injury, a significant concern given Watkins’ pivotal role for USC.

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Despite these challenges, Watkins has demonstrated resilience and poise. Her performance this season reflects her ability to adapt and excel under pressure. However, her journey to rival Caitlin Clark’s legacy will require more than individual brilliance. Watkins must navigate the complexities of playing in a city where attention is fragmented, balancing her development with the need to draw a larger following.

Whether she can carve out her own path and emerge as a player of Clark’s stature remains uncertain. For now, her record-breaking performances and undeniable talent keep her firmly in the conversation, as the basketball world watches to see if she can overcome the challenges of her California roots and fulfill her potential as the next NCAA superstar.



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Lights back on after power outage in parts of Southern California

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Lights back on after power outage in parts of Southern California


Lights back on after power outage in parts of Southern California – CBS Los Angeles

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Several cities in Southern California experience power outages on Christmas Eve night. Crews worked around the clock to restore power to residents just in time for the holiday morning.

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How California’s high-speed rail line will advance in 2025

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How California’s high-speed rail line will advance in 2025


California’s high-speed rail project, which aims to connect San Francisco and Los Angeles with a 494-mile route capable of speeds up to 220 mph, aims to continue construction in 2025.

Phase 1 of the project focuses on linking San Francisco in the north to Anaheim via Los Angeles in the south, with plans to extend the line north to Sacramento and south to San Diego in Phase 2.

The California High-Speed Rail Authority, which is overseeing the project says it has already generated significant economic benefits, including creating over 14,000 construction jobs and involving 875 small businesses.

But despite its transformative goals, the project remains politically contentious, with critics questioning its costs and viability. It has been in development since voters approved funding in 2008 and has faced delays, cost increases, and shifting timelines.

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Composite image of trains and the California state flag. The state’s high-speed rail project will continue construction in 2025, despite Republican critics questioning its costs and viability.

Photo Illustration by Newsweek

Work Planned for 2025

In a statement to Newsweek, the California High-Speed Rail Authority outlined its planned work for 2025, which focuses on continuing construction in the Central Valley between Merced and Bakersfield.

The 171-mile segment between Merced and Bakersfield will be the first part of the line to be operational, with services expected to start between 2030 and 2033. Of that section, 119 miles are currently under construction.

Of the planned structures in the Central Valley section, 85 are underway or completed out a total of 93 on the segment. Work will continue on these structures as well as on the tracks capable of handling high-speed trains.

By the end of 2025, civil construction on the 119-mile segment currently underway is expected to be completed and construction will begin on the next stretches to Merced and Bakersfield.

In 2025, the authority also plans to advance design and begin construction on its stations in the Central Valley. It also expects to select a manufacturer for the trains.

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Although the initial operating segment will only run 171 miles from Merced to Bakersfield, environmental clearances have been obtained for 463 miles of the 494-mile Phase 1 route, completing the stretch between San Francisco and Los Angeles. Only the Los Angeles-to-Anaheim section is still awaiting approval.

California High Speed Rail Map
A map showing California’s proposed high-speed rail network from February 2021. The initial operating segment, between Merced and Bakersfield, is expected to begin services between 2030 and 2033.

California High Speed Rail Authority

The Authority said it plans to publish its draft environmental impact report for the Los Angeles-to-Anaheim section in 2025, a key milestone for the eventual full-approval of Phase 1.

More than $11 billion has been invested to date, with funding sources including state bonds, federal grants, and proceeds from California’s carbon emission trading auctions.

The authority has not yet received funding to construct the segments westwards from the Central Valley to the Bay Area or southwards to Los Angeles.

Despite this, the authority said it was committed to pushing on.

“California is the first in the nation to build a true high-speed rail system with speeds capable of reaching 220 mph,” the Authority told Newsweek. “The Authority remains committed and aggressive in moving this historic project forward while actively pursuing additional funding.”

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Political Opposition to the Project

Despite ongoing progress, the high-speed rail project continues to face political opposition, particularly from Republican leaders.

While President Joe Biden’s administration has invested billions in it since 2021, the incoming Republican administration, which will control the House of Representatives, the Senate, and the presidency, is unlikely to continue funding it at the same level.

Representative Sam Graves of Missouri, who chairs the House Transportation and Infrastructure Committee, has criticized the project’s costs and funding strategies.

In a statement to Newsweek, Graves described the rail line as a “highly troubled project” and raised concerns about its reliance on government subsidies.

California High Speed Rail Rendering
A rendering of one of the trains for California’s proposed high-speed rail project, which is currently under construction.

California High Speed Rail Authority

He pointed out that the current funding supports only a limited segment between Merced and Bakersfield, which he estimated will cost $35 billion.

“Full cost estimates [for Phase 1, between San Francisco and Anaheim] now exceed $100 billion and growing,” Graves said, calling for a comprehensive review of the project before any additional funding is allocated.

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“California high-speed rail must have a plan and prove that it can wisely and responsibly spend government money—something it’s failed to do so far.”

The congressman stated that over the next four years, he would oppose any further federal funding for the California high-speed rail project.

Instead, Graves advocated for efforts to redirect unspent funds and focus on improving existing transportation infrastructure, such as Amtrak.

Graves also emphasized the need for private-sector involvement in future rail projects, citing Brightline’s operations in Florida and Las Vegas as a successful example of private investment.

While Graves acknowledged the potential of high-speed rail, he argued that the California project has failed to meet the necessary criteria for viability and local demand.

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The authority told Newsweek it would engage with the federal government to seek other funding sources.

“We continue to explore strategies aimed at stabilizing funding, potentially allowing the program to draw private financing and/or government loans,” it said.



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