Inflation is still running well above plan, and that means the Federal Reserve is keeping its finger firmly on the pause button. The central bank raised rates 11 times in 2022 and 2023, with the expectation that it would reverse course this year. But as inflation has stayed above 3%, it is standing pat. Following the Fed’s June 12 meeting, its fourth gathering of the year, Chairman Jerome Powell held steady again, announcing no change in interest rates. The Fed also signaled that it’s likely to cut rates only once this year, down from its previous estimate of three cuts.

“Mortgage rates, which have remained higher for longer, will likely remain in the high 6s until later this year,” says Lisa Sturtevant, chief economist at Bright MLS, a large listing service in the mid-Atlantic region. “Some homebuyers who have been sidelined by affordability challenges are going to wait until rates come down to buy. Increasingly, home sellers may have to do more negotiating to attract offers.”

The Federal Reserve and the housing market

Earlier in the inflationary cycle, the Fed had enacted increases of as much as three-quarters of a point. Now that inflation is down to 3.3% — still higher than its official target of 2%, but not terribly far off — that round of tightening appears to be over. However, until inflation drops down closer to that target, housing economists wonder when the anticipated rate cuts will begin.

“We still look for mortgage rates to drop to about 6.5% by the end of 2024,” says Mike Fratantoni, chief economist at the Mortgage Bankers Association.

In an effort to rein in inflation, the Fed boosted interest rates aggressively in 2022 and 2023, including a single jump of three-quarters of a percentage point. The hikes aimed to cool an economy that was on fire after rebounding from the coronavirus recession of 2020. That dramatic recovery has included a red-hot housing market characterized by record-high home prices and microscopic levels of inventory.

The Fed’s rate hikes have slowed the housing market. Home sales have dropped sharply. But home prices remain near record levels. Because home values are not driven solely by interest rates but by a complicated mix of factors, it’s hard to predict exactly how the Fed’s efforts will affect the housing market.

Higher rates are challenging for both homebuyers, who have to cope with steeper monthly payments, and sellers, who experience less demand and lower offers for their homes. After hitting 8% last fall, mortgage rates have dipped back down a bit. As of June 12, the average 30-year rate stood at 7.10%, according to Bankrate’s national survey of lenders.

How the Fed affects mortgage rates

The Federal Reserve does not set mortgage rates, and the central bank’s decisions don’t move mortgages as directly as they do other products, such as savings accounts and CD rates. Instead, mortgage rates tend to move in lockstep with 10-year Treasury yields.

Still, the Fed’s policies do set the overall tone for mortgage rates. Lenders and investors closely watch the central bank, and the mortgage market’s attempts to interpret the Fed’s actions affect how much you pay for your home loan. The Fed bumped rates seven times in 2022, a year that saw mortgage rates jump from 3.4% in January all the way to 7.12% in October. In 2023, mortgage rates went higher still, briefly touching 8%.

“Such increases diminish purchase affordability, making it even harder for lower-income and first-time buyers to purchase a home,” says Clare Losey, an economist with the Austin Board of Realtors in Texas.

What happens to the housing market if interest rates rise?

There’s no doubt that record-low mortgage rates helped fuel the housing boom of 2020 and 2021. Some think it was the single most important factor in pushing the residential real estate market into overdrive.

In the long term, home prices and home sales tend to be resilient to rising mortgage rates, housing economists say. That’s because individual life events that prompt a home purchase — the birth of a child, marriage, a job change — don’t always correspond conveniently with mortgage rate cycles.

History bears this out. In the 1980s, mortgage rates soared as high as 18%, yet Americans still bought homes. In the 1990s, rates of 8% to 9% were common, and Americans continued snapping up homes. During the housing bubble of 2004 to 2007, mortgage rates were high, yet prices soared.

So the current slowdown may be more of an overheated market’s return to normalcy rather than the signal of an incipient housing crash. “The combination of elevated mortgage rates and steep home-price growth over the past few years has greatly reduced affordability,” Fratantoni says.

But if mortgage rates pull back, affordability will become less of a factor. For instance, borrowing $320,000 at the mid-June rate of 7.10% translates to a monthly principal-and-interest payment of $2,151, according to Bankrate’s mortgage calculator. Borrowing the same amount at 8% translates to a monthly payment of $2,348. That’s a difference of nearly $200 per month.

A continued decline in mortgage rates could create a new challenge, though: It will likely draw new buyers into the market, a surge that could further intensify the ongoing shortage of homes for sale.

Next steps for borrowers

Here are some pro tips for dealing with elevated mortgage rates:

—Shop around for a mortgage: Savvy shopping can help you find a better-than-average rate. With the refinance boom considerably slowed, lenders are eager for your business. “Conducting an online search can save thousands of dollars by finding lenders offering a lower rate and more competitive fees,” says Greg McBride, Bankrate’s chief financial analyst.

—Be cautious about ARMs: Adjustable-rate mortgages may look tempting, but McBride says borrowers should steer clear. “Don’t fall into the trap of using an adjustable-rate mortgage as a crutch of affordability,” he says. “There is little in the way of upfront savings, an average of just one-half percentage point for the first five years, but the risk of higher rates in future years looms large. New adjustable mortgage products are structured to change every six months rather than every 12 months, which had previously been the norm.”

—Consider a home equity loan or HELOC: While mortgage refinancing is on the wane, many homeowners are turning to home equity lines of credit (HELOCs) to tap into their home equity. The rationale is simple: If you need $50,000 for a kitchen renovation and you have a mortgage for $300,000 at 3%, you probably don’t want to take out a new loan at 7%. Better to keep the 3% rate on the mortgage and take a HELOC — even if it costs 10%.

(Visit Bankrate online at bankrate.com.)

©2024 Bankrate.com. Distributed by Tribune Content Agency, LLC.

“How expensive?” tracks measurements of California’s totally unaffordable housing market.

The pain: Even California workers making more than 75% of all jobs will struggle to buy a home.

The source: My trusty spreadsheet created an “affordability” index comparing the 75th percentile income in 50 states as of May 2023 – that’s the median of the upper half of all annual wages – from the Bureau of Labor Statistics against the median home value, as tracked by Zillow.

The pinch

In a state where roughly half of all households own their home, it’s not hard to see why the 75th percentile pay is typical for house hunters.

In California this annual pay ranks third-highest in the nation at $93,250 versus $70,035 nationally. That’s 33% higher.

Tops for upper-crust paychecks was Massachusetts at $98,110, then Washington at $95,180. Lows? Mississippi at $55,870, Arkansas at $58,900, and South Dakota at $59,980. California rivals Texas was No. 22 at $72,640 and Florida was No. 30 at $67,600.

Then ponder pricing, California’s bane.

The typical statewide residence was No. 2 costliest in the US last year at $753,800 versus $325,750 nationally. That’s 131% higher. Yes, more than double.

Top home prices were in Hawaii at $848,700. No 3. was Massachusetts at $586,600. Lows? West Virginia at $157,400, Mississippi at $177,100, and Kentucky at $200,300. Texas was No. 29 at $305,600. Florida was No. 17 at $390,800.

The point of pain

Now, think about who can afford to buy a home.

Imagine the buying power of a 7% mortgage for a borrower devoting 40% of those 75th percentage wages to the house payment.

In California, these wages buy you 61% of the typical residence. That ranks next-to-last and well below the 110% nationally.

Only Hawaii was worse at 45%. No. 3 was Utah at 69%. Tops was West Virginia at 193%, Ohio at 165%, and Illinois and Mississippi at 157%.

And Texas was No. 20 at 118% and Florida was No. 38 at 86%.

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

Steven and Katherine Wolf missed out on the ultra-low mortgage rates of the pandemic. By the time the couple secured solid jobs and could buy a home, borrowing costs more than doubled.

Rather than wait, the former renters jumped into homeownership in fall 2022. They also stretched, buying a Bakersfield, California, home that carried an uncomfortable monthly payment.

Steven Wolf figured the pain would be fleeting. Within a year rates would drop enough to allow them to refinance and put hundreds of dollars back into their pockets.

That hasn’t happened and isn’t expected to soon. In fact, rates are higher.

“We did this with the expectation that we would only have to weather this high payment for a chunk of time,” the 37-year old English teacher said. “Now that chunk of time is looking like it might actually be permanent.”

Across the country, many buyers employed similar strategies after rates surged in 2022 — at times encouraged by real estate agents and mortgage brokers who earn a commission on each deal. The tactic could still work, but as interest rates stay higher for longer, some Americans express varying degrees of regret as their finances buckle.

A woman in Twinsburg, Ohio, said she’s taken a second job. A man in Oregon said putting money away for retirement is a “distant thought.”

Some said they’re now selling their home or will need to soon. Chelsea Bolinger purchased a house in Highland Ranch, Colo. The 35-year-old tech worker called the experience “horrible.”

“I only bought it because the loan company really pushed that interest rates were going to go down,” Bolinger said.

In Wolf’s case, he said his family’s monthly housing costs jumped nearly $1,500 when they ditched their second-floor apartment and bought a Bakersfield house for $421,000, in part because he and his wife wanted a yard for their two children.

Unable to knock down his monthly payment through refinancing, the family is making little progress paying off other debts and Wolf is working an extra period.

His wife, a speech language pathologist, has picked up weekend shifts she wouldn’t have if rates had dropped.

“That would have been more Saturdays together with the kids,” Wolf said.

In theory, the strategy Wolf and others employed is supposed to work like this.

Buy now — when rates are high and demand low — and you’ll more easily snag a home than if you waited until rates drop and reignite extreme bidding wars.

By acting now, a home’s purchase price will be lower. The monthly payment will be high, but that will go down once rates decline and you refinance.

As some say: Marry the house. Date the rate.

Personal finance, of course, is complicated.

When refinancing, you pay loan fees and other closing costs, which can exceed several thousands of dollars. Consumers must weigh those upfront costs against any savings on the monthly payment.

Holden Lewis, a mortgage expert with NerdWallet, said it typically makes financial sense to refinance once rates drop at least three quarters of a percentage point from where you bought.

According to the Mortgage Bankers Assn., the average rate on a 30-year fixed mortgage should drop to 5.9% by the fourth quarter of 2025, compared with 6.9% currently.

Buying now can be smart, but people should only do so if they are comfortable with the current payment, Lewis said. Expert predictions of falling rates have been proved wrong time and time again. Other home costs — such as HOA fees and insurance — tend to go up.

Even if rates fall, there’s no guarantee you’ll save. Your credit score could drop and lenders will charge you more.

Amy Ramirez is among the many Americans who say they have no regrets.

She and her wife, Noelle, bought a home in Rancho Cucamonga in March. They can comfortably afford it and love the additional space compared with the property they sold in Los Angeles.

Ramirez isn’t expecting rates to drop soon and thinks buying when they did reduced the likelihood of bidding wars on their turnkey, four bedroom house with a swimming pool and mountain view.

“It is just great,” said Ramirez, who, along with Noelle, runs a s’mores shop in West Covina.

High mortgage rates aren’t only affecting consumers, but are also slamming many in the real estate industry as transactions decline.

Some lenders have responded with “Buy Now, Refinance Later” programs that offer reduced refinance fees if you take out a mortgage with the company to buy a home, then use them to refinance within a certain period of time.

Lewis said consumers should check whether the purchase mortgage in such a program carries higher fees or interest rates and also understand that when it comes time to refinance, other lenders may offer lower rates that would save far more than any reduction in fees from the original lender.

As of now, experts said there’s little sign that the inability to refinance will cause a bust similar to the collapse of the 2000s housing bubble.

Then, rising mortgage rates and falling home prices prevented many Americans from executing their plan to refinance out of risky loans before monthly payments adjusted upward from initial teaser rates. Stuck with those high payments, people entered foreclosure en masse, causing home prices to plunge.

Now, home prices are rising and struggling borrowers can probably sell to pay off their mortgage.

Even if prices were to fall, today’s tighter underwriting standards mean people should be better equipped to afford their mortgages than last time, while lenders offer struggling borrowers more options to adjust payments so they don’t lose their home.

“You are going to get very few foreclosures,” said Laurie Goodman, founder of the Housing Finance Policy Center at the Urban Institute think tank. “You are not going to get into that vicious cycle.”

In hindsight, Wolf said, he wished he had sought advice from someone without a financial stake in his home purchase, because he didn’t understand how to properly calculate the risk that his loan officer’s prediction — rates below 6% by summer 2023 — wouldn’t come true.

“I’m not a financial professional,” Wolf said. “I am an English teacher.”

A spokesperson with Wolf’s mortgage company, PrimeLending, said that the company could not comment on individual clients, but that it evaluates a borrower’s ability to repay based on current interest rates and that it “does not make guarantees” on how borrowing costs will change.

“The mortgage market is inherently unpredictable, and while we provide information based on current trends and expert analysis, these are not assurances,” the spokesperson, Mandy Jordan, said in an email.

Going forward, the Wolfs are looking to move to Baltimore after getting better job offers there.

Because their high monthly payment is more than what they could rent their house out for, they’ve listed it for sale and don’t expect to get their down payment back.

The other day, Wolf said he spoke with his loan officer who encouraged him to buy right away in Baltimore so they don’t get priced out and gave a new prediction for when rates would drop.

He also offered to do their loan, according to Wolf.

©2024 Los Angeles Times. Visit at latimes.com. Distributed by Tribune Content Agency, LLC.

If you sell your home after the middle of August, cheers: You could end up pocketing the money that previously would have gone to the buyer’s agent.

But before you celebrate, consider the downside of waiting until late summer to list your home for sale: House prices tend to fall after August. The price drop might surpass the money you save on commission.

New policies governing real estate commissions are set to go into effect Aug. 17 as a result of the settlement of an antitrust lawsuit. The amended policies give home sellers more room to negotiate what to do about the buyer’s commission — whether they want to use it to induce competitive bids or keep it to themselves entirely.

The choices complicate this season more than usual, for both buyers and sellers. Here’s what to know to help you and your agent come up with the best strategy for you.

What, exactly, is changing?

Starting Aug. 17, sellers will no longer set the commissions for real estate agents who represent buyers. Buyers will decide how much their agents will be paid. Even when sellers are willing to pay some or all of the commission for the buyer’s agent, the amount will no longer appear on the multiple listing service.

For decades, and up to Aug. 17, MLS listings have been required to advertise how much commission the seller is offering to buyer’s agents. The information wasn’t visible to home buyers but could be viewed in agent-only fields of the MLS.

When sellers set commissions for buyer’s agents, they’re sometimes advised that offering a low commission will attract fewer buyer’s agents — and therefore fewer competing offers. The plaintiffs in the antitrust suit argued that the policy of requiring commission info on the MLS was designed to discourage them from negotiating lower commissions for buyer’s agents.

Can sellers start offering 0% to buyer’s agents today?

Technically, sellers have always had the option of offering zero or minimal commission to the buyer’s agent. But most sellers have offered such commissions to motivate buyer’s agents.

Even though they will set their agents’ commissions, buyers won’t necessarily pay out of pocket. Buyer and seller will negotiate who will pay. Scenarios include:

• The money may come directly out of the seller’s pocket, as has been the norm.
• The money may come directly out of the buyer’s pocket.
• The buyer and seller may split the payment.
• The buyer may pay indirectly, by adding their agent’s commission to the price of the house when they make an offer.

Here’s an example of how an indirect payment might work for a buyer who is paying a 3% commission. The buyer finds a house costing $400,000. The 3% commission is $12,000. The buyer offers $412,000 and asks the seller to transfer $12,000 to the buyer’s agent at closing.

Keep in mind that sellers, having equity, tend to have more access to cash than first-time home buyers, who accounted for 33% of buyers in April. A seller who’s willing to pay all or some of the buyer’s commission may end up with more offers, and a higher final price, than one who flatly takes that commission off the table.

How much money could sellers keep, though?

As a home seller, you stand to save thousands of dollars on commissions if the buyer pays their agent directly or indirectly.

Let’s say the agents in your town typically collect 2.5% on each side of the transaction, and you sell your house for $400,000. Each agent earns $10,000. If you pay both agents, you’ll shell out $20,000 and end up with $380,000.

But if the buyer pays their agent, you would pay your agent $10,000 and walk away with $390,000. That’s $10,000 more.

On the other hand, buyers might request bigger closing cost credits, subtracting from the seller’s bottom line, Chuck Vander Stelt, a real estate agent in Valparaiso, Indiana, said in an email. Or buyers might offer less because they will bear the expense of paying their own agents.

Even after Aug. 17, sellers might keep offering commissions to buyer’s agents as motivation, Vander Stelt added. These offers could remain standard in many markets, multiple agents said. Offering commissions to buyer’s agents will still be permissible under the new policies, but those offers will no longer appear on the MLS. Listing agents can communicate the information on brokerage websites, or in phone calls, emails and texts.

What would be the cost of waiting?

You might be tempted to keep your home off the market until the new policy goes into effect. But waiting might not be a wise move, because it would mean sitting out homebuying season.

Home prices peak from May through August, then drop off. In 2023, the median existing home cost $410,100 in June, $405,600 in July, $404,200 in August — and $392,700 in September, according to the National Association of Realtors. If you list your house after mid-August, you probably won’t close until October or later, when prices are even lower.

With house prices peaking in summer, you might come out ahead by selling during the busiest time of the year, even if you end up paying the buyer’s agent’s commission.

“I don’t really have anybody holding off until after August to list their house because they want to save a couple bucks,” says Michelle Doherty, an agent in northern Virginia with RLAH Real Estate. She says her clients will be ready to sell in June or July, “depending on how things progress with prepping the house.”

Can I negotiate the listing agent’s commission too?

You might save money if you don’t pay the buyer’s agent’s commission. But what about the commission that you pay the listing agent for selling your home? You might not see an immediate reduction. If a cut in commissions from 3% to 2% is your hope, you’ll probably mope.

“First of all, nothing’s going to change quickly, OK?” says Stephen Brobeck, senior fellow for the Consumer Federation of America. “The industry will resist, and consumers don’t really focus on this much.”

Vander Stelt said that he sees headlines that proclaim “the end of the 6% commission.” That’s a mistaken belief, he said. “Overall, the average commission costs per transaction on a percentage is likely to come down over the coming years,” he said. But not instantly.

What if I list before Aug. 17 but sell after?

Months can pass between the day you put your home on the market and the day you hand over the house keys at closing. What if the Aug. 17 policy change happens in the middle of this period? The National Association of Realtors provides guidance for two scenarios:

• Your home’s MLS listing offers to pay the buyer’s agent’s commission, and you sign the contract accepting the purchase offer before Aug. 17: You’ll pay the commission, even if the closing occurs on Aug. 17 or after.
• Your home’s MLS listing offers to pay the buyer’s agent’s commission. But in accordance with the new policy, that offer is removed from the MLS on Aug. 17. Sometime after that date, you accept the purchase offer: That defunct commission offer on the MLS is no longer valid. You and the buyer will negotiate how to take care of the buyer’s agent’s commission.

When you put up your home for sale, you’ll sign a listing agreement with your agent. NAR says that listing agreement might have to be amended if it says that an offer to pay the buyer’s agent must be made “on the MLS.” As of Aug. 17, that clause in the listing agreement will conflict with the new policy. Your agent might ask you to sign an amended listing agreement before that date.

Holden Lewis writes for NerdWallet. Email: hlewis@nerdwallet.com. Twitter: @HoldenL.

The article Should I Wait Till August to Sell My Home to Save on Commission? originally appeared on NerdWallet.

After starting a career in engineering in Boynton Beach, Florida, Moisey Abdurakhmanov was renting a home with friends when he decided he wanted his own place.

“I realized I was basically paying somebody else’s mortgage every month,” he recalls.

So when the lease was up, he moved back home with his parents, saved every dime he could and bought a house five months later in January 2021 — “easily one of the best decisions I’ve made.”

Many millennials are taking a similar path to homeownership. About a quarter (24%) of people ages 25 to 33 who bought a home between July 2022 and June 2023 said they moved in directly from a family member’s home, according to a National Association of Realtors’ survey. Last year 29% of people who planned to buy a home in the next 12 months had already moved in with their parents to save money, and another 22% said they’d consider doing so, according to a May 2023 survey by Realtor.com and Censuswide.

With high housing prices and rising mortgage rates, you might think saving for a house will take ages. Moving in with parents can speed up the process and eliminate the headache of synchronizing a home purchase with the end of a rental lease.

But the strategy comes with challenges, no matter how much you like your folks. Here’s how to make it work.

Clarify your savings goals

Before broaching the idea, research the market where you plan to buy, figure out how much home you can afford and set a savings goal.

The two biggest upfront expenses are the down payment and closing costs. Minimum down payment requirements vary by mortgage type. Some conventional loans have minimum down payments as low as 3%, but the more you put down, the less your monthly payments will be. Closing costs range from about 2% to 6% of the loan amount.

Consider taking a first-time home buyer’s class to learn about the process, and consult with a lender or two. When you’re ready to shop for a home, you’ll want to get preapproved for a mortgage. When you’re still months away from house hunting, apply for pre-qualification — a less intense process — to see how much you may be able to borrow and what your monthly payments might be.

Then set a time frame. How long will it take to reach your goal if you move back home?

Discuss expectations — yours and your parents’

Have a conversation with your parents about your goals and time frame. Express your expectations about moving in, and ask them about theirs.

“We can avoid distress by recognizing our own expectations first and then communicating clearly with each other about what we’re hoping for … A red flag for me would be if the parent says yes without any conversation about expectations. That would set up a recipe for ill feelings on the back side,” says Saundra Davis, founder of Sage Financial Solutions, a nonprofit financial education and planning agency in the San Francisco Bay Area.

Give space for discussing pros and cons and how you’ll navigate the challenges, including the emotional ones. Understand that there may be mixed feelings about the new living arrangement. “Very few people feel 100% bad about something or 100% good about something,” says Ed Coambs, a certified financial therapist, fee-only certified financial planner and author of “The Healthy Love & Money Way: How the Four Attachment Styles Impact Your Financial Well-Being.”

Some parents and adult children may feel a stigma about moving back home, but don’t let societal pressures subconsciously drive your decisions.

“I think that the United States as a culture has normalized what we call ‘launching.’ If you look at other cultures and in the Black community, it is not abnormal for our kids to stay home longer,” says Davis, who is also a mindfulness teacher and master certified coach. The “failure to launch” concept can put extra pressure on parents and young adults. “If there is shame, where does it come from? Do we believe it? And does it serve us?” Davis says.

Sort out those feelings and do what’s best for you and your family.

Agree on household responsibilities

“The question is, what does it look like for us as mature adults and family members to live in this space together?” Coambs says.

Will you chip in for household expenses? How much? Will you share groceries? Who will do the shopping? What about cooking and cleaning? Will you call home if you’re going to be out late?

All of these — and more — are up for discussion.

Abdurakhmanov, who moved back home in August 2020, says his folks agreed to let him stay rent-free and fully supported his plan to buy a house. But the transition was still an adjustment.

“When I went from having the freedom to do what I want, when I want, to being under the roof of my parents again, there was a lot of headbutting between how I wanted to live my life and what my parents wanted me to do,” he says. “It was a little rough.”

So they talked.

“I drew some boundaries and told them there were certain things that we would just not argue about anymore … We all agreed to shift our focus and look forward to the future.”

Meanwhile, Abdurakhmanov agreed to join his parents more frequently for family dinners and events. “They had missed spending time with me … They felt I was drifting away from them, and they didn’t like that, which is understandable. I can see where they were coming from.”

Schedule regular family check-ins

Keep communication lines open after you move in. Set a regular time to check in about how things are going.

What’s working well with the living arrangement? What could be handled better? Are you on track with meeting your saving goals? Do you need to adjust the timeline?

It doesn’t have to be a formal business meeting. In fact, these conversations might go better during a meal or a relaxed outing.

Listen and empathize

No matter how well you’ve planned and communicated, occasionally you’ll get on each other’s nerves. Listen and be curious.

“Often we get stuck in our own perspective or what we think is the other person’s perspective,” Coambs says. “When we can insert empathy into the relational dance, oftentimes it can loosen things up and open up new options.”

Then the potential payoff from moving back home is more than a home down payment.

“It can also represent a great opportunity to continue to grow and nurture your adult-to-adult relationship with your parents,” Coambs says.

Abdurakhmanov says living with his folks helped prepare him for his next chapter. “It was a good buffer period for me to reestablish myself and everything about me that I wanted to take forward moving into my own place.”

Barbara Marquand writes for NerdWallet. Email: bmarquand@nerdwallet.com. Twitter: @barbaramarquand.

The article Moving Back Home to Save for a House: How to Make It Work originally appeared on NerdWallet.

The stock market’s venerable yardstick, the Dow Jones Industrial Average, just made history – crossing 40,000 for the first time.

Yes, this milestone set Thursday, May 16, is only a brief emotional victory for shareholders. Yet it can be seen as a historical milepost for the broader business climate, especially in California.

To honor the moment, the trusty spreadsheet reviewed the Dow’s 5,000-point markers and how California fared in those periods using an economic metric (California unemployment), an interest rate (the average 30-year fixed mortgage), and home prices from the California Association of Realtors.

As we begin our data-filled voyage, let’s note the Dow first crossed 5,000 in November 1995 — back when you could buy the median-priced California single-family home for $176,000.

5,000-point mileposts

Dow passes 10,000 in December 1999: It took the stock index just over four years to double from 5,000 compared with a 28% gain for California homes to $225,000 in the same timeframe. This was an era when the economy broke loose from its early 1990s slumber. California unemployment dipped between 1995 and 1999 to 5% from 7.9% while mortgage rates rose to 7.9% from 7.4%.

15,000 in May 2013: The Dow needed more than 13 years to gain 50% to hit this benchmark vs. an 85% surge for homes statewide to $417,000 in the same period. This extended gap came during the financial rollercoaster ride from the bubble period in the early 2000s bursting into a Great Recession and then the economy’s slow recovery. So, California unemployment was 9.2%, up from 5% at the beginning of this crazy period. Yet, cheap money was one salve: 3.5% mortgages vs. 7.9% in 1999.

20,000 in January 2017: The Dow took under four years to gain 33% to gain the next 5,000 while homes statewide gained 18% to $492,000 as the post-crash rebound continued. California unemployment fell to 5.2% from 9.2%  as mortgage rates ticked up to 4.2% from 3.5% in 2013.

25,000 in January 2018: The Dow needed just one year to gain 25% for its next benchmark vs. a 7% gain for California homes to $528,000 as the recovery hit full stride. California unemployment dipped to 4.4% from 5.2% while mortgage rates slipped to 4% from 4.2% in 2017.

30,000 in November 2020: The index took just under three years to gain 20% vs. 32% for California homes to $699,000 in the middle of the pandemic’s business wild gyrations. California unemployment surged to 9% from 4.4%  – but investors cheered historically cheap money such as mortgages hitting 2.8%, falling from 4% in 2018.

35,000 in July 2021: It took the Dow less than a year to gain 17% vs. 16% appreciation for California homes to $811,000 as the pandemic’s economic surge was in full force. Statewide unemployment fell to 7.4% from 9% and mortgages remained cheap – 2.9% vs. 2.8% in 2020.

40,000 in May 2024: The Dow took almost three years to gain 14% vs. an 11% gain for California homes to a record $904,000 in April. The economy struggles to find its new normal as statewide unemployment fell to 5.3% in April from 7.4%. But mortgages got expensive as the Federal Reserve fought and overheated economy – 7% in April from 2.9% in 2021.

Bottom line

So, the Dow is up eight-fold since crossing 5,000 just over 28 years ago. California homes are only five times more expensive.

That’s not the point, though. This stroll down memory lane reminds us that the markets typically need a solid economy for stocks or homes to appreciate. Cheap money is the icing on the cake.

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

Californians started 2024 with the most challenges in paying their bills on time in nine quarters.

If there’s a must-watch number out there to gauge the financial pulse of the consumer, it’s the New York Fed’s quarterly tracking of who’s paying their bills on time. These figures are compiled from an analysis of credit histories from Equifax. So, we’re talking about bill-paying patterns of folks with credit profiles.

Caveat noted, we see that Californians had 1.27% of their balances marked late by 90 days or more. That’s the highest delinquency rate since 2021’s fourth quarter, when the economy was digesting both pandemic business shutdowns and a flood of stimulus dollars. And late payers are also up from 0.96% at 2023’s start.

But before you sound any big alarms, here’s a little perspective: This current pace of tardy payments is well below the 1.87% average of pre-coronavirus 2018-19. Or, what we call the normal days.

Plus, it’s nowhere near the Great Recession’s peak of 12.6% delinquency in 2009’s 4th quarter.  Or, what we call the worst-case scenario.

And this may surprise you, too: Californians are paying bills far swifter than their national peers and even their economic arch-rivals, Texans and Floridians.

Nationally, 1.83% of bills were plus-90 days late in the first quarter vs. 1.46% a year ago. As with California, early 2024’s late payers are below the 3.07% seen in 2018-19 and the 8.6% peak of 2010’s 1st quarter.

In Texas, 2.53% of bills were plus-90-days late vs. 1.9% a year ago and 3.9% in 2018-19. The peak was 6.2% in 2010’s 1st quarter. And in Florida, delinquency ran 2.56% vs. 1.74% a year ago and 4.1% in 2018-19. That peak ran 18.2% in 2010’s 1st quarter.

So, to varying degrees, the national and statewide patterns are aligned: Skipped bills are rising yet still below pre-pandemic days.

Bunch of debts

What’s likely no surprise is how much Californians owe – a bunch, and that’s primarily due to the state’s expensive housing.

California consumer debts equaled $86,940 per capita in the first quarter, with 80% of that debt tied to mortgages. That’s up 2.2% in a year and 21% in five years.

Compare that with the typical American’s debts: $61,874 – 70% in mortgages – which is up 2.7% in a year and 22% in five years.

The Golden State’s economic arch-rivals have even fewer debts, but borrowing has been surging. Tough question: Is that economic confidence, or is the cash needed to cover unpaid bills?

Texas debts run $57,450 per capita – 65% in mortgages – up 3.4% in a year and 31% in five years. In Florida, it’s $60,590 – 68% in mortgages – was up 5.1% in a year and 32% in five years.

Mortgage making

Since we all suffer some degree of bubble-bursting PTSD, a first question may be: “Are most house payments being paid?”

Yes, but 0.33% of California mortgage debts were plus-90 days late in the first quarter — up from 0.19% a year earlier. But this delinquency rate is down from 0.52% in 2018-19 and just a sliver of the 13.2% pinnacle in 2009’s fourth quarter.

Again, California outshines the competition.

US mortgage delinquency ran 0.6% in the quarter vs. 0.44% a year ago and 1.05% in 2018-19. The peak was 8.9% in 2010’s first quarter.

Texas’ late mortgages were 0.63% to start 2024 – almost double 0.32% a year ago – but off from 0.79% in 2018-19. Slow-paying mortgages in Florida ran 1% – triple 0.32% a year ago – but were off the 1.71% rate of 2018-19.

Foreclosures, the really troublesome home loan indicator – are a rarity

Going broke

Perhaps the worst cases of skipping bills – bankruptcy filings – also have been rare so far in this economic cycle.

New bankruptcies in California ran at 10 per 100,000 people to start 2024. That’s up from eight a year ago but down from 16 in 2018-19 and 500 at the peak of 2009’s 2nd quarter.

US bankruptcies ran at 15 per 100,000 in the first quarter vs. 13 year ago and 26 in 2018-19. The peak was 240 in 2009’s second quarter.

Texas started 2024 with 14 new bankruptcies per 100,000 vs. 12 in 2023’s first quarter and 22 in 2018-19. Florida had 18 per 100,000 – double nine from a year ago but off from 29 in 2018-19.

Bottom line

US consumers started last year with record low late payments on this New York Fed scorecard, which dates to 2003. Same for Texans and Floridians.

California’s skipped bills hit their bottom in 2023’s second quarter.

So, an uptick from best-ever payment habits seemed inevitable, especially when the Federal Reserve has been hiking interest rates to chill an overheated economy suffering a bad bout of inflation.

Still, increased late payments can’t be ignored. The past year’s surge is something to keep a keen eye on.

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

Is California’s unemployment problem double what’s commonly discussed?

Ponder a quarterly employment report from the BLS that contains for Californians another bit of discomforting data: a jobless measurement using a broad interpretation of folks with paycheck problems.

This benchmark includes the officially jobless, the discouraged worker and those who are underemployed. It includes people working part-time who want full-time employment. It also tracks folks with no jobs who aren’t counted as unemployed because that haven’t recently looked for work.

What some people consider the “real” unemployment rate shows 9.5% of Californians were in this distressed employment status in the year ended in the first quarter. That’s almost double the “official” jobless rate, and it’s the state’s worst reading since 2022’s second quarter.

It’s also highest in the nation, ahead of Nevada at 8.9%, Alaska at 8.6%, Washington at 8.6%, and New Jersey at 8.3%. Vermont was lowest at 3.8%, followed by South Dakota at 3.9%, and North Dakota. California rival Texas was 11th-highest at 7.5% while Florida was No. 30 at 6.1%.

Even the traditional jobless measurement scores California as the nation’s second-highest state for unemployment at 4.8%. Only Alaska at 4.9% was worse.

After California came New Jersey at 4.8% and Washington, D.C. and Nevada at 4.7%. Texas was No. 12 at 3.9%. Florida was No. 40 at 2.9%. Vermont was lowest at 1.8%, then North Dakota and South Dakota at 2.2%.

No matter the math, California joblessness is not just about big losses of late in the tech industry. High interest rates have throttled real estate-related industries. A relatively strong US dollar hurts manufacturing. And economic uncertainty limits white-collar, business-service staffing.

Still, you can find some job market improvement by comparing where “real” employment has been moving – the start of 2024 vs. pre-pandemic days.

California’s “real” unemployment in the first quarter was 1.2 percentage points below its 10.7% average for 2015-19.

And that’s a bigger drop than the nation: This US jobless count fell to 7.7% to start 2024 from 8.7% in 2015-19 – just a 1-point dip.

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

The pain: Rent hikes outpaced pay raises in 44 of 50 big US metropolitan areas during the past four years – and in four of six metros from California in this study.

The source: My trusty spreadsheet reviewed Zillow’s analysis of the growth in rents vs. increases in average hourly earnings between 2019 and 2023 across the nation.

The pinch

The pandemic economy was not kind to renters. Nationally, rents jumped 30.4% over four years vs. pay hikes of 20.2% – a 10.2 percentage-point cost shortfall for the typical tenant.

Next, consider the Inland Empire’s fast-growing economy. It could not keep pace with the rising cost of being a tenant by the widest margin in California.

In the past four years, rents in Riverside and San Bernardino counties jumped by 41.4% (the fourth-largest bump among the 50 metros). Meanwhile, IE wages rose by 23.3% (No. 7 nationally).

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That meant the Inland Empire’s typical paycheck trailed the monthly rent check by 18.1 percentage points – the 16th worst gap among the 50.

The worst shortfall, nationally speaking? Tampa! Its 50% rent hike (No. 2 of the 50) badly trailed 15.3% raises (No. 27) – for 34.7-point gap.

Pressure points

Three other California markets had smaller but similar gaps.

San Diego: 36.6% rent hike (No. 8) vs. 18.8% raises (No. 18) – trails by 17.8 points (No. 17).

Sacramento: 28.6% rent hike (No. 30) vs. 16.2% raises (No. 26) – trails by 12.4 points (No. 23).

Los Angeles-Orange County: 22.2% rent hike (No. 43) vs. 17.2% raises (No. 22) – trails by 5 points (No. 41).

But the Bay Area – which has suffered significant population outflow in recent years that’s dampened housing demand – wages outpaced rents.

San Jose: 6% rent hike (No. 49) vs. 12.5% raises (No. 39) – ahead by 6.5 points (the second-biggest win for renters).

San Francisco: 3.4% rent hike (smallest among the 50) vs. 12% raises (No. 42) – ahead by 8.6 points (the biggest win).

Good news

At least this budget-busting trend cooled a bit last year, with pay increases in four out of the six California metros outpacing rents.

New construction of rentals plus slightly thinning demand for housing gave renters some pricing power. And a limited supply of workers kept pay hikes elevated.

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San Jose’s 6.6% raises for 2023 beat a 0.8% rent gain. In the IE, 5.9% raises topped 3.1% rent hikes. San Francisco’s 2.6% raises bested a 0.1% rent cut. And LA-OC’s 2.7% raises surpassed 2% rent gains.

But Sacramento’s 1.6% raises were outpaced by 3% rent gains. And in San Diego, 1.4% raises trailed 3.1% rent hikes.

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

The number: Bay Area pay raises started 2024 above Southern California wage hikes for the first time since the pandemic-scarred summer of 2020.

The source: My trusty spreadsheet looked at the quarterly Employment Cost Index. It tracks changes in private-industry pay nationwide and 15 big job markets, including a seven-county Southern California area and a 10-county Bay Area region.

Quick analysis

Bay Area wages rose at a 4.7% annual pace in the first quarter (No. 5 of the 15 US markets), up from 2.8% in the previous three months (worst of the 15) and tied with 4.7% a year earlier (No. 9).

Southern Californians only got 4.5% raises (No. 6) in 2024’s first three months. Not only did the region trail its northern peer, these pay hikes were down from 5% in 2023’s fourth quarter (which ranked No. 2) and 4.9% in 2023’s first quarter (No. 8).

Ponder that despite recent distressing news of significant California technology job cuts, these stats suggest salaries remain firm for many Golden State workers.

Deeper dive

Bosses got a tad stingy nationwide. The typical US worker got a 4.3% pay hike in the first quarter – the same annual pace as the previous three months but down from 5.1% a year earlier.

Yes, pay is cooling: Raises shrank in six of the 15 markets for the quarter and 11 over the year.

Note that to start 2024, Miami’s stunning 7.1% hike was No. 1 among the 15 US markets. Meanwhile, 2.8% raises for Phoenix were the lowest.

And, despite the Southern California cooling of raises, the first quarter saw the region’s pay-hike pace exceed the national pace for the 33rd time out of the last 36 quarters. As a comparison, Bay Area raises have topped the US hikes only 18 times over these nine years.

In this 2015-24 period, Southern California raises averaged 4.2% a year (No. 1 of the 15) vs. the Bay Area’s 3.4% (No. 7) and 3.4% nationally.

Think about those lofty salary bumps and then consider that the median selling price of a single-family home in both California markets rose at an 8%-a-year clip in these same nine years.

Last thought

Putting the intrastate rivalry aside, please note that 2024 started with US pay hikes that strongly suggest inflation is by no means cured.

Ponder the meek pay raises of the post-Great Recession, low-inflation days of 2011-2014: Bay Area averaged 2.7%, Southern California was at 1.6%, and the US at 1.9%.

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