Improving Housing Affordability and Labor Market Stability

This week’s economic data includes: (1) pending home sales for November and (2) weekly initial jobless and continuing claims.

KEY SUMMARY:

Pending home sales rose 3.3% in November – the highest index level since February 2023 – driven by easing mortgage rates and slower price growth, signaling improving affordability and potential housing market momentum into early 2026, despite ongoing inventory and affordability challenges.

Pending home sales rose 3.3% in November to an index level of 79.2, the highest since February 2023, according to the National Association of Realtors’ Pending Home Sales Index. The increase outpaced October’s revised 2.4% gain and market expectations of 0.9%, marking the fourth consecutive monthly rise – a streak last seen during the pandemic refinancing boom. Year-over-year, pending sales were up 2.6%, with all regions posting gains. The West led with a 9.2% monthly jump, its largest since June 2020, while the South, the nation’s biggest housing market, rose 2.4%. The improvement was fueled by moderating home price growth and easing mortgage rates.

Home prices grew just 1.2% in November, bringing year-to-date growth to 2.0%, well below the 2024 average of 4.5%. Mortgage rates continued to decline, with the 30-year fixed rate dropping from 6.25% in October to 6.15% by year-end – its lowest level of 2025 after starting above 7%. These trends point to improving affordability and could support stronger existing home sales in early 2026. However, while lower rates and slower price appreciation may unlock pent-up demand, especially in high-cost regions, affordability constraints and limited inventory remain key risks to sustained housing momentum.

Initial and continuing jobless claims both declined in late December, was better than expected and signaled a stable labor market with no signs of broad-based weakness.

Initial jobless claims fell by 16,000 to 199,000 for the week ending December 27, beating expectations and marking three straight weeks of declines after an early December spike. Seasonal factors like Christmas and new federal holidays may have influenced the drop, but the four-week average edged up slightly to 218,750, reflecting the absence of major layoffs. Continuing claims also improved, falling by 47,000 to 1.866 million for the week ending December 20, with the four-week average dipping to 1.874 million – indicating no signs of broad-based weakness in the labor market.

Equity markets ended lower on year-end profit-taking, Treasury yields ticked up with a steeper curve, and markets continue to price in two Fed rate cuts in 2026, signaling cautious sentiment amid light holiday trading.

Equity markets finished the week lower, largely due to year-end profit-taking and the absence of strong catalysts. Low trading volumes amplified volatility, while Tesla’s disappointing annual deliveries and the lack of a traditional “Santa Claus rally” kept sentiment subdued. For the week, the Nasdaq fell 1.60% (-0.03% YTD), the S&P 500 dropped 1.06% (+0.19% YTD), the Dow slipped 0.72% (+0.66% YTD), and the Russell 2000 declined 1.56% (+1.06% YTD), showing a quiet and choppy end to the year.

In the Treasury market, yields edged higher across most maturities, with more pronounced increases in mid- and long-term rates, steepening the curve. The 2-year closed at 3.47%, the 5-year at 3.74%, and the 10-year at 4.19%, reflecting concerns about inflation and expectations that the Fed may keep rates elevated longer. Markets continue to price in two 25-basis-point cuts in April and September 2026, which would lower the federal funds rate upper bound to 3.25%, while no cuts are anticipated for 2027. Overall, moves were modest amid a holiday-shortened week and light trading volumes.

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DETAILED ANALYSIS:

Pending Home Sales – November Update:

The National Association of Realtors reported November pending home sales based on its Pending Home Sales Index, which tracks signed contracts for existing homes—including single-family, condos, and co-ops—and serves as a 1- or 2-month leading indicator for closed sales. The index uses MLS and large broker data to measure monthly changes against a 2001 baseline (Index = 100).

Pending sales rose 3.3% to 79.2 in November, up from 76.7 in October, marking the highest index level since February 2023. This monthly gain exceeded both the prior month’s revised increase of 2.4% and market expectations of 0.9%. The improvement was driven by moderating home price growth and easing mortgage rates. November marked the fourth consecutive monthly increase – a streak last seen during the pandemic refinancing boom. On a year-over-year basis, pending sales rose 2.6%, with all regions posting gains. The West led with a 9.2% monthly increase (largest since June 2020) and a 2.4% annual rise, followed by the South (+2.4%), the nation’s largest housing market.

Home price growth in November was 1.2%, bringing year-to-date growth to 2.0%, well below the 2024 average of 4.5%. Mortgage rates continued to decline: the average 30-year fixed rate fell to 6.24% in November from 6.25% in October, then to 6.19% in December, and ended the year at 6.15%- the lowest level of 2025 after starting the year above 7%. This combination of easing rates and slower price appreciation is an encouraging sign for affordability and could support stronger existing home sales heading into 2026.

The sustained improvement in pending sales suggests early momentum for housing demand as financial barriers ease. Lower mortgage rates and moderated price growth may unlock pent-up demand, particularly in high-cost regions like the West. If this trend persists, housing could provide a modest tailwind to economic activity in early 2026, though affordability constraints and inventory shortages remain key risks.

Jobless Claims – Week Ending December 27:

The Labor Department reported that initial jobless claims fell by 16,000 to 199,000 for the week ending December 27, down from 215,000 the prior week (revised up from 214,000) and below market expectations of 218,000. The week included Christmas as well as the newly declared federal holidays on December 24 and 26, likely creating seasonal adjustment issues that may have lowered claims. After a sharp increase of 45,000 in the first week of December, claims have trended lower for the past three weeks. The four-week moving average, which smooths seasonal fluctuations, rose to 218,750 – up 1,750 from the previous week’s revised average of 217,000 – indicating no major layoffs.

Continuing claims, which track individuals receiving unemployment benefits and are reported with a one-week lag, declined to 1.866 million for the week ending December 20, down 47,000 from 1.913 million (revised down from 1.923 million) the prior week and below expectations of 1.902 million. The four-week moving average dipped by 18,000 to 1.874 million from 1.891 million, indicating no evidence of broad-based weakness.

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MARKET ANALYSIS:

Equity Market Weekly Recap

Equity markets ended the week lower, driven primarily by year-end profit-taking amid a lack of clear market catalysts. Low trading volumes amplified volatility and contributed to the downward trend, while Tesla’s disappointing annual deliveries and the absence of a traditional “Santa Claus rally” kept share prices subdued during the holiday period.

Weekly and Year-To-Date (YTD) Performance Highlights:

• Nasdaq: -1.60% (weekly) & -0.03% (YTD), closing at 23,236
• S&P 500: -1.06% (weekly) & +0.19% (YTD), ending at 6,858
• Dow Jones Industrial Average: -0.72% (weekly) & +0.66% (YTD), closing at 48,382
• Russell 2000: -1.56% (weekly) & +1.06% (YTD), ending at 2,508

Treasury Market Update

Treasury yields edged higher across most maturities, with more pronounced increases in mid- and long-term rates, resulting in a steeper yield curve:

• 2-year yield: 3.47% (+0.01%)
• 5-year yield: 3.74% (+0.06%)
• 10-year yield: 4.19% (+0.05%)

The larger moves in longer-maturity yields reflect renewed concerns about potential inflation risks and the possibility that the Federal Reserve may keep rates elevated for longer than previously anticipated. Overall, the modest yield changes are consistent with a holiday-shortened week and low trading volumes.

Rate Cut Expectations

As in the past two weeks, markets have fully priced in two 25-basis-point cuts—expected in April and September 2026—while no cut is currently anticipated for 2027. These adjustments would lower the federal funds rate upper bound to 3.25%, down from the current 3.75%.

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NEXT WEEK’S ECONOMIC CALENDAR:

Key scheduled releases include:

• 1/5 (Monday):
  • ISM Manufacturing (December)
• 1/7 (Wednesday):
  • ISM Services (December)
  • Job Openings and Labor Turnover Survey (November)
• 1/8 (Thursday)
  • Nonfarm Productivity (Q3 2025)
  • Unit Labor Costs (Q3 2025)
  • Weekly Initial and Continuing Jobless Claims
• 1/9 (Friday)
  • Nonfarm Payrolls and Unemployment Rate (December)

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For a visual representation of this week’s economic review, you can view or download the slide deck here: 01.05.2026 CBC Weekly Economic Update Slides

Mark Yoon, CFA CPA

EVP & CFO of Commercial Bank of California

Thomas McCullough

EVP of Commercial Bank of California

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