SF Bay Market Insights - November

After a historic 43-day shutdown, the federal government officially resumed operations last week. The longest shutdown in U.S. history impacted 730,000 federal employees working without pay, disrupted SNAP benefits for 42 million recipients, and caused thousands of flight delays and cancellations. Economists estimate the shutdown reduced GDP by 0.8 percentage points, with some losses expected to recover as federal workers receive back pay. However, approximately $11 billion will be permanently lost due to missed work hours.

For the housing sector, the reopening restores key programs including FHA, VA, USDA loan processing, and the National Flood Insurance Program, which will help ease stalled transactions. Some backlogs, however, may cause short-term delays.

Small Business Optimism Dips

The NFIB Small Business Optimism Index fell to a six-month low of 98.2 in October, down 0.6 points from September. This decline reflects lower sales and profits, with fewer small business owners reporting higher revenue over the past three months. Net sales volumes dropped 6 points to -13%, while reports of positive profit trends declined to -25%.

Interestingly, the Small Business Uncertainty Index fell 12 points to 88, the lowest since December 2024, possibly influenced by lower-than-expected September inflation data. Despite this, only 20% of firms expect the economy to improve over the next six months, signaling a cautious outlook.

Foreclosure Activity Rises But Remains Low

Foreclosures on U.S. properties increased in October, with 36,766 filings reported—a 3% rise from September and a 19% jump from October 2024. At the national level, one in every 3,871 housing units faced foreclosure. In California, the rate was slightly higher at one in every 3,407 homes, ranking the state 10th nationwide. Counties with the highest rates included Shasta, Mendocino, and Kings.

While still far below historic highs, the rise in foreclosures highlights ongoing financial pressure on homeowners amid rising costs and economic uncertainty, suggesting potential increases over the next six months.

Consumers’ Employment Outlook: “Low-Fire, Low-Hire”

According to the New York Fed’s Survey of Consumer Expectations, consumers’ perceptions of the labor market showed mixed signals. The probability of losing one’s job in the next year decreased slightly to 14.2%, while the likelihood of finding a new job within three months dropped to 46.8%.

Consumer optimism around inflation improved, with one-year-ahead expectations falling to 3.2%. Cooler inflation trends could provide the Federal Reserve more flexibility and may support potential rate cuts later this year.

Construction Spending Shows Modest Gains

U.S. construction spending in August inched up 0.2% month-over-month and 1.6% year-over-year. Private residential construction spending also rose 0.8% from July, though it remains down 1.8% compared to August 2024.

Single-family homes saw a slight month-to-month increase (+0.2%), while multifamily construction rose 1.1%. Despite this summer uptick, elevated interest rates and high building costs continue to challenge developers, limiting a full recovery in construction activity.

The November market presents a mix of cautious optimism and ongoing challenges. The government reopening should help ease some housing transaction delays, but small business sentiment, foreclosure trends, and labor market concerns point to potential near-term headwinds. Buyers, sellers, and investors should remain vigilant as the economy and housing market navigate these uncertain times.