I have taken a brief pause this week from the usual weekly write-up summary report to provide you with a quick analysis on the impacts of the recent Southern California fires that occurred less than a month ago.

The market has been very fluid since the fires began in the first week of January. Closed sales in the 6 primary cities affected by the fire have dropped considerably from nearly 15 per week in the weeks ending January 4 and January 11, to just 5 over the past two weeks. That represents a nearly 70% cumulative decline in weekly sales volume from the start of January. Winter is typically a slow time for the housing market in general, but this compares with sales that were up 2% cumulatively over the past two weeks in the rest of the state (i.e. excluding Los Angeles County).

There are also signs that the impacts will continue as buyers, sellers, and homeowners decide their next steps. For example, home sales in the sample of 6 impacted cities showed that pending sales last week rose on par with new escrows opened in the rest of the state as the winter housing market begins to thaw (rising more than 20% over the previous week). Many buyers who were in the search and/or offer stage of their home purchase may be more motivated to move forward as they expect inventory to be even tighter moving forward.

Concerns about inventory are likely justified and the long-term impacts on supply are expected to outweigh the impacts to demand even though some residents will choose to relocate rather than rebuild. New homes being added to the MLS has jumped up over the past two weeks in the affected cities, as it has in the rest of the state. However, the pace of growth in new supply was nearly double the control group as both seasonal patterns and selling of affected properties drove a bigger increase in those markets. However, with pending sales also rising, the total available inventory has been roughly flat over the past two weeks despite rising in the rest of California.

As a result of the imbalance between the impacts to supply and the impacts to housing demand, I expect affected areas and areas perceived as substitutes (either geographically or by price point) will likely see more competition for homes amongst buyers and an uptick in home prices over the medium term. This has been a consistent pattern observed after previous wildfires in Santa Rosa and Paradise, as well as the Thomas Fire from a few years ago.

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The Governor has signed many new laws impacting real estate. This chart summarizes new laws passed by the California Legislature that affect real estate and real estate practice in 2025. For the full text of a law, click onto the bill link at the end of each summary or go to http://leginfo.legislature.ca.gov/ for California laws.

2025 NEW LAWS CHART

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California ended the year with a positive note with home sales reaching the highest level in five months. As projected, both sales activity and the statewide median price were up modestly for the year as a whole as California wrapped up 2024 with a double-digit gain in sales. With mortgage rates remaining at their highest level since early July and devastating wildfires taking a toll on the L.A. region’s housing market, California will likely have a slow start this year, but demand should pick up once we enter the spring homebuying season. The market is expected to improve in 2025, but stickier-than-expected inflation, the ongoing insurance crisis, and policy changes under the new White House administration are challenges that could put a drag on the market.

California home sales close the year strong: California ended the year with the largest yearly increase in existing home sales since June 2021, but its housing market remained a work-in-progress in December. Despite a double-digit growth rate from their year-ago level, sales of existing single-family homes remained well below the pre-Covid norm of 400k units. The strong year-over-year gain observed last month was largely due to low-base effects once again, as home sales in December 2023 dropped to their lowest level since late 2007. Nonetheless, the increases from the prior year and the prior month were encouraging and lifted sales of the entire year modestly above 2023’s level. Total sales of existing single-family homes in 2024 improved by 4.3% from the year prior and marked the first gain in three years.

Median price bounces back in California in 2024: The statewide median price in December continued to climb on a year-over-year basis for the 18^th consecutive month, and the gain recorded last month was on par with the 6-month moving average observed between June 2024 and November 2024. On a month-to-month basis, the December median price had a slightly stronger November-to-December increase than the historical long-run average growth between the two months. For the year as a whole, the 2024 annual median price was up 6.3% from the prior year, a solid bounce back from the dip of 0.6% in 2023. While prices are expected to moderate further in the next couple of months as they follow their seasonal trend, a low single-digit year-over-year growth should continue to be observed in Q1 2025 before the homebuying season kicks off.

Core CPI dips for the first time in five months: U.S. consumer prices registered the largest increase in nine months, but the core inflation annual rate decelerated for the first time since July. The latest headline Consumer Price Index (CPI) went up 0.4% from the prior month and was up 2.9% from the same month of last year. Most of the monthly gain in the overall price growth in December was due to higher fuel costs, as gasoline surged 4.4% from November. Excluding food and energy, the core CPI rose 0.2% month-over-month and came in at 3.2% year-over-year. The core annual inflation reading had been stuck at 3.3% in the past four months, and December was the first time since July that the year-over-year price growth decelerated. Shelter costs, which accounted for about one-third of the total increase in CPI in December, rose 0.3% month-over-month and increased 4.6% year-over-year. The annual increase was the smallest growth rate recorded since January 2022 and the slowdown in housing inflation was a contributing factor for the dip in core inflation in the latest month. The market reacted positively to the news, with mortgage rates dipping more than 15 basis points since the release of the inflation report.

Retail sales up but come in lower than expected: U.S. retail sales ended 2024 with a solid clip in December, with consumers spending slightly less than expected at the end of the year. While the overall retail sales increase of 0.4% from the prior month was just shy of the 0.5% gain projected by economists, November retail sales were revised upward to 0.8% from the initial estimate of 0.7%. On a year-over-month basis, consumers spent 3.9% more than they did in December 2023. Growth was observed across the board, with miscellaneous store retailers (+4.3%), sporting goods/hobby/musical instrument/bookstores (+2.6%), and furniture (+2.3%) gaining the most in December. Building materials & garden stores (-2%) remained weak at the end of last year, but restaurant sales (-0.3%) also pulled back for the first time in nine months, which was a surprise. With gift purchases remaining solid, the drop in restaurant sales could just be a pause at the year-end as consumers decided to use the money to fund their holiday shopping instead. As the job market continued to be strong late last year, the outlook of retail sales remains positive for the first quarter of 2025.

U.S. foreclosure activity dips for the first time since 2021: Foreclosure filings on U.S. properties decreased to 322,103 in 2024, a drop of 10% from 2023, a dip of 1% from 2022, and a plunge of 35% from 2019, according to ATTOM. Foreclosure activity last year remained well below the Great Recession’s level, with filings in 2024 down 89% from the peak of 2.9 million in 2010. The 322k plus properties with foreclosure filings represented 0.23% of all U.S. housing units, a dip from both 0.25% in 2023 and 0.36% in 2019. The share was also a significant drop from the peak of 2.23% in 2010. For the month of December, 28,632 properties in the U.S. started the foreclosure process, a 3% decline from the prior month, and a drop of 6% from the same month in 2023. Nationwide, one in every 4,922 properties had a foreclosure filing in the last month of the year. At the state level, California had 29,529 foreclosure starts in 2024, an increase of 1.2% from 29,180 reported in 2023. With home prices expected to rise again in 2025 and the economy projected to grow modestly this year, foreclosure activity will likely continue to stabilize in the next 12 months.

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Southern California had a rough start to the new year, with four major fires burning in L.A. County, forcing thousands to evacuate. The devastating blazes have incinerated more than 10,000 structures and will likely be one of the costliest in U.S. history. While the conditions have shown some slight improvements in the past couple days, the danger is far from over as more strong winds are expected this week. We hope the fires will be under control very soon and hope everyone stays safe.

Devastating wildfires sweep through Southern California: The wildfires in LA County have destroyed almost 10,000 properties in the last few days and nearly 180,000 people were ordered to evacuate. The devastation resulting from the disasters will lead to a pullback in housing activity in the LA market and home sales in the immediate areas will come to a halt in the near term. Housing demand in the affected cities will take time to recover but the overall LA market should begin to bounce back later in the spring homebuying season. The loss of thousands of homes will tighten up housing supply in the affected areas and their surrounding neighborhoods, and upward pressure could apply to home prices later this year in the surrounding neighborhoods as housing demand begins to recover. Rents in those neighborhoods will go up in the next few months as demand for rental units surges. Economic activity in the affected areas will slow in at least the next six months but will pick up in late 2025 or early next year when the rebuilding starts. The wildfires in L.A. could also deepen the insurance crisis in Southern California and may lead to higher insurance costs for homeowners.

December housing sentiment dips from the prior month but remains higher than levels seen a year ago: Home Purchase Sentiment released by Fannie Mae decreased 1.9 points in December and remained substantially higher than the level recorded 12 months ago. The index dipped slightly to 73.1 from November but was up solidly by 5.9 points from 67.2 recorded in December 2023. The share who said that it is a good time to buy declined by 1 point to 22% last month, as the average 30-year fixed rate continued to rise since early December. Despite their recent upward movement, consumers remained optimistic about the direction of mortgage rates in 2025, as 42% of the respondents continued to expect rates to decline over the next 12 months. The share is a drop from 45% recorded in the prior month but is much higher than the 31% registered in December 2023. With interest rates rising sharply after the latest jobs report, however, consumer sentiment about the direction of rates could pull back further in the January survey.

Job growth exceeds expectations in December: The latest employment report came in much stronger than expected, with nonfarm payrolls increasing 256k in December, the highest reading since March 2024. The surge in jobs last month exceeded the 155k projected by the Dow Jones consensus. Most of the job growth was in health care (+46k), leisure and hospitality (+42k), and the government (+33k). Retail also saw a nice bounce back of 43k, after dropping 29k in November. Manufacturing (-13k) dipped again last month after a decent bounce back of 25k jobs in November. The unemployment rate surprisingly improved, with the December reading dipping 0.1 percentage points from the previous month to 4.1% and beating the consensus expectations also by 0.1 percentage point. The solid gain in job creation also translates into earnings growth, with average hourly wage rising 0.3% month-over-month and 3.9% year-over-year. With the labor market’s strength coming in stronger than anticipated, a rate cut in the upcoming FOMC meeting in late January is off the table, and a downward adjustment in rate in March also seems questionable.

Mortgage rates soar after strong jobs report: Mortgage rates climbed higher after December job growth came in stronger than expected. With the U.S. economy adding nearly 10k more jobs than the consensus of 155k, the news sent bond yields and mortgage rates higher as the market expected the Fed to pause on rate cuts possibly in the next two meetings. Yields on 10-year Treasury have gone up by slightly more than 10 basis points (bps) to 4.8%, while the average 30-year fixed rate mortgage has climbed 11 bps to 7.26% in the past two days after the release of the jobs report. With December’s Consumer Price Index scheduled to be released on Wednesday, mortgage rates could see more fluctuations in the week ahead.

Consumer expectations on short-term inflation unchanged but job turnover expectations decline: Consumers expectations on inflation at the short-term remained the same as the prior month in December, but medium-term increased while the longer-term decreased, according to the latest New York Fed’s Survey of Consumer Expectations. At the one-year horizon, the median inflation expectation was at 3.0% in the last month of 2024, the same as what was recorded in November and was unchanged from the 3.0% recorded in December 2023. Consumers also expected home prices to increase 3.1% a year from now, a slight increase from the 3.0% recorded in the prior month and the same month of last year. Their expectations on the labor market came in mixed, with the likelihood of losing one’s job in the next 12 months dipping 1.6 percentage point from the prior month to 11.9% in December, but the median one-year-ahead expected earnings growth also declined by 0.2 percentage point to 2.8%. The mean perceived probability of finding a job if one’s current job was lost also fell sharply from 54.1% in November to 50.2% in December. The share was the lowest since April 2021, which could be an indication that job seekers are becoming more concerned about job opening availability.

Curious about what’s going on in your local market? As your trusted real estate resource, I’m always here to help—feel free to reach out with any questions. I’m just a phone call away!