February 02, 2026 – Recent economic indicators point to a housing market navigating a delicate balance between improving financing conditions and softening demand fundamentals. Mortgage rates held somewhat steady following the Federal Reserve’s cautious pause, yet slower employment growth along with elevated home-purchase cancellations and rising rental vacancies highlighted ongoing affordability pressures and shifting supply-demand dynamics. Adding to this cautious backdrop, consumer confidence has retreated to a multi-year low, signaling growing household uncertainty that could further moderate housing activity.

Mortgage Rates Show Slight Movement as Fed Signals Cautious Pause and Markets Weigh Future Cuts: Recent Federal Reserve policy and financial-market developments have kept mortgage rates relatively stable, but they remained sensitive to shifting economic signals. At its late-January meeting, the Fed held the federal funds rate at 3.50%–3.75% after three consecutive cuts in 2025, adopting a cautious wait-and-see stance as growth remains steady while inflation persists above target. Mortgage rates have since drifted sideways, with the average 30-year fixed rate hovering in the low-to-mid-6% range as modest upticks in Treasury yields put upward pressure on rates. Looking ahead, borrowing costs are expected to remain broadly stable with periodic volatility as markets weigh the potential for additional rate cuts later in 2026 amid the ongoing inflation pressures and an uncertain economic outlook. Adding to the policy backdrop, President Trump has nominated former Fed governor Kevin Warsh to succeed Jerome Powell as Federal Reserve Chair, a development that may have an effect on the central bank’s strategic direction and its implications on future rate policy decisions.

Consumer Confidence Drops to Multi-Year Low as Economic Uncertainty Weighs on Household Outlook: Consumer confidence deteriorated sharply at the start of the year, falling to its lowest level since 2014 as households grew increasingly concerned about job security, income prospects, and the broader economic outlook, according to the Conference Board’s latest release. Survey data indicate that both present-condition assessments and forward-looking expectations weakened, with rising inflation concerns and persistent affordability pressures eroding optimism despite relatively stable financial markets and moderating interest rates. The decline was broad-based across income and age groups, suggesting caution is becoming more entrenched among consumers rather than confined to a single demographic. For the housing market, softer confidence levels typically translate into more deliberate purchasing behavior, slower household formation, and heightened sensitivity to borrowing costs—factors that may temper home-buying activity in the near term, particularly in higher-cost states such as California.

State Employment Growth Slows as California Construction Jobs Decline and Labor Market Momentum Cools: State-level employment data for December 2025 indicate generally stable labor conditions nationwide, though overall job growth continued to moderate and construction employment showed notable regional divergence. National non-farm payrolls rose by just 50,000 in December, and average monthly job gains for 2025 slowed sharply to roughly 49,000, well below 2024 levels. While 22 states and the District of Columbia posted modest monthly gains, 27 states recorded declines, and year-over-year growth nationwide was limited to 0.4%. In California, total employment edged slightly lower on an annual basis, reflecting relatively flat conditions compared with stronger gains in states such as Texas and Missouri. Construction employment was particularly uneven, with California posting the largest annual construction job loss among all states despite a slight increase at the national level. This softening trend may temper housing demand and development activity in the Golden State even as selected regions continue to post moderate gains.

Home-Purchase Cancellations Hit Decade High, Signaling Softer Sales Ahead: Home-purchase contract cancellations climbed to their highest level in nearly a decade in December, underscoring growing fragility in the housing market as affordability pressures and economic uncertainty weigh on buyer confidence. According to Redfin, more than 40,000 signed purchase agreements, or 16.3% of all homes that went under contract, were terminated, the highest share recorded since tracking began in 2017. The increase coincided with a widening supply-demand imbalance, with sellers outnumbering buyers by roughly 47%, granting purchasers greater negotiating leverage and encouraging more selective decision-making. While cancellations were most pronounced in several Sun Belt metros, California markets such as San Francisco and San Jose recorded comparatively lower termination rates, reflecting relatively tighter inventory conditions. Nevertheless, with cancellation trend remaining on the rise while pending sales showing signs of softening, closed transactions in early 2026 are likely to remain subdued and prices could moderate further in the first quarter of 2026.

U.S. Apartment Rents Fall to Four-Year Low as Record Vacancies Rise, While California Markets Show Mixed Trends: Apartment rents continued to soften at the start of 2026 as elevated supply and weakening demand eroded landlords’ pricing power, pushing national rents to their lowest January level in four years. According to Apartment List, the national median rent fell to $1,353,down 1.4% year over year and more than 6% below its mid-2022 peak. Vacancy rates climbed to a record 7.3%, while average leasing times stretched to 41 days, underscoring a growing imbalance between available units and renter demand. Although the surge in new apartment construction has peaked, a sizable pipeline of deliveries continues to come online amid softer labor conditions and slower household formation. While rent declines remain most acute across the South and Mountain West, several higher-cost coastal markets—including San Jose and San Francisco—are still posting modest gains. For California, easing rent pressures may provide incremental relief for renters and help cool housing-related inflation, but also signal near-term headwinds for multifamily investors as elevated vacancies and concessions persist.

Note: This summary report gets updated every Monday by 6:00 pm PST. Feel free to email us at [email protected] if you have any questions and/or feedback.

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