Public Health Numbers on Upswing Again: After rising in the face of a more aggressive Delta variant of COVID-19, the number of new cases has been on the decline for the past week after reaching a plateau the preceding week. Hospitalizations also appear to have peaked, and though they have yet to come down from their elevated levels, they should begin to follow new cases down as well. California has also made some progress on vaccinations with nearly two-thirds of adults having received their first dose of the vaccine.

U.S. P/E Ratio Improves on Stronger Profits: Following a strong bump in U.S. corporate profits during the second quarter, equity markets valuations make a little more sense. Over the past 18 months, the value of publicly traded companies here at home (as measured by the Wilshire 5000) has reached nearly 18 times the current level of U.S. corporate profits. Last quarter, that number fell to 16.8, which is still elevated relative to the standard range of 7-11 times, but it is a positive sign for overall risk that the two indicators have started to come back into alignment.

Interest Rates Hold Steady for Now: Despite ongoing inflation and improving economic conditions generally, uncertainty about the virus and future economic conditions, particularly in light of the expiration of several key government stimulus programs including forbearance and pandemic unemployment assistance, interest rates remain near historic lows. Although this has yet to show in the mortgage applications or weekly sales figures, it is perhaps preventing a stronger seasonal cooldown after such a strong homebuying season earlier this year. Consumer even showed a slight uptick in homebuying sentiment in our July Housing Sentiment Survey.

REALTORS® Report More Seasonal Cooling Last Week: Last week, REALTORS® reported declines in business activity across the board. Fewer members did a listing appointment (33.3%), fewer added a new listing to the MLS (28.2%), fewer entered escrow (23.7%), and fewer closed a transaction (24.4%). However, more REALTORS® reported an increase in optimism about sales and listings next week, which is consistent with the broader market data that has held up surprisingly well despite ongoing supply constraints and some buyer fatigue. In another positive sign, the number of REALTORS® reporting a transaction falling out of escrow has fallen for the past 3 weeks.

Large Rolls of Unemployed as Pandemic Unemployment Ends: The Pandemic Unemployment Assistance, or PUA program, has now ended with nearly 1.6 million Californians on continuing claims at the end of August. Some of those workers may go over to traditional unemployment insurance, but some may begin to reenter the workforce as well in the coming months as job openings remain near record highs. However, with more than two million workers on some form of unemployment assistance as we began September, the economy still has a lot of healing left to do and the expiration of many forms of assistance will likely usher in more disruption in coming months as stimulus starts to work its way out of our economic system.

Mortgage Applications Corroborate REALTOR® Survey: Despite a modest increase in homebuyer sentiment for California consumers in August, mortgage applications just posted their 16th consecutive year-to-year decline last week. The overall index is showing a similar pattern of seasonal slowing that we observe in the weekly California home sales data, but the home sales figures have avoided more substantive declines up to this point. However, we expect home sales to continue their gradual decline as the market remains competitive and buyers continue to grapple with rising prices and a lack of available units.

California Association of REALTORS | Contributed

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“Despite a strong U. S. economy and a low unemployment rate, trouble, however, could be right around the corner. The fact of the matter is that it’s very difficult to improve upon an unemployment rate of 4 percent by generating sufficient job growth to push the unemployment rate below 4 percent.”
“Don’t overlook the fact that inflation has been picking up since the beginning of the year. According to the Bureau of Labor Statistics, the Consumer Price Index for all urban consumers, less food and energy, hit 2.4 percent in July 2018. That’s its highest reading since September 2008. While some inflation is good (the Fed typically targets 2 percent), more than that can be bad news according to Sean Williams of the Motley Fool.

Home sales are beginning to decline in key markets. Williams goes on to say that during the Great Recession, housing was a leading indicator of the trouble that lay ahead. It’s possible that we could be seeing similar warning signs (without insanely high mortgage default rates) this time around. “More specifically, in June 2018, we witnessed an 11.8 percent year over year decline in new and existing home and condominium sales in California, according to CoreLogic. California’s housing market is often a leading indicator to the industry as a whole. Seeing sales dip by a double-digit percentage should be a warning that Wall Street and investors pay attention to.”

Credit card debt and late payments are on the rise. A report released by credit reporting agency TransUnion as of February 2018 found that three key credit metrics were all heading higher. 1) The number of outstanding credit cards climbed from 364.2 million to 418.6 million between 2014 and 2) The average debt per cardholder increased from $5,329 in 2014 to $5,644 as of 2017. 3) The percentage of accounts that were delinquent 90 days or more had jumped from 1.48 percent in 2014 to 1.87 percent in 2017. As interest rates rise, servicing the debt will become more difficult, perhaps resulting in higher delinquency
rates that in turn can create a negative domino effect for companies behind those loans.

In closing, Williams goes on to say that “though averages alone don’t provide enough concrete evidence that a recession is near, they are another piece of a growing puzzle that implies a recession is closer than you probably realize.”

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