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The Big Story
Sellers are coming back to the market
Quick Take:
- Affordability improved dramatically in Q3 2024 with the monthly mortgage payment for a 30-year loan down 10%. Prices are contracting slightly, which is the seasonal norm.
- In September, the average 30-year mortgage rate declined for the third month to 6.08%, a 1.14% drop from the 2024 high reached in early May. The Fed also cut rates in September and will likely continue cutting them over the next six months.
- Sales declined 2.5% month over month, falling to the lowest level in modern history, while inventory rose to its highest level since 2020. Better affordability hasn’t yet translated to higher sales.
Note: You can find the charts & graphs for the Big Story at the end of the following section.
*National Association of REALTORS® data is released two months behind, so we estimate the most recent month’s data when possible and appropriate.
More inventory hasn’t translated to sales…yet
Enough data has been released to suggest that home prices peaked nationally in June 2024, and won’t peak again this year. Of course, there will be deviations in local markets, but the larger trend is clear: home prices are returning to a more normal growth and contraction cycle in which prices increase from January to June and contract from June to January. Sales have trended lower for nearly three years now, and that sales slowdown has allowed inventory to build to the highest level since 2020.
We were hopeful that sales would continue to increase this month due to the declining rates as it did last month, but sales fell to the lowest level in modern history. Even though the Fed lowered their benchmark rate by 0.50% at the September Fed meeting, mortgage rates weren’t largely affected, mainly because the rate cut was already priced into the current mortgage rates. In Q3 2024, the median price fell 2.8% and the mortgage rate declined by 74 bps, causing the payment on a monthly 30-year mortgage to drop 10%. Affordability is improving and the median home buyer saved $100,000 over the life of the loan, if they bought in September rather than June (a huge change in just three months!). Rate cuts and improved affordability are a promising sign as we look ahead to the spring market. We expect to enter 2025 with falling rates, high inventory, and seasonally lower home prices, which should create the perfect storm necessary for a hot spring market.
During the early pandemic, the Fed provided huge incentives to buy homes as part of its easy monetary policy by purchasing Mortgage-Backed Securities (MBS) and dropping interest rates. MBS play an integral role in home financing by allowing banks to bundle and sell mortgage loans, turning the bank into an intermediary between the financier and financial markets (investors). Banks get some fees, while investors (rather than the bank) get the interest and incur the risk from the bundle of mortgages. So, in many ways, the bank facilitates the loan but investors are the ones really lending the buyer the money. The Fed was a huge investor in 2020 and 2021, doubling its MBS holdings to $2.7 trillion by 2022. However, the Fed isn’t buying any more MBS and, in fact, has sold 15% ($4.16B) of its MBS holdings over the past two years. Even though rates are coming down, the MBS market has shifted to make loans less easy to originate, which has contributed to the market slowdown.
Last September, the average 30-year mortgage rate was 7.31%, meaning that a $500,000 loan would cost $3,431 per month. For reference, that same loan now costs $3,056 per month at 6.08%. Because the interest rate has such an outsized impact on the affordability of a home, fewer buyers entered the market, allowing inventory to build. Even though far fewer sales occurred over the past year, prices still rose, which they almost always do. This is actually a newer phenomenon, but one that isn’t going away. Since the mid-1990s, home prices began to move more like risk assets (stocks, bonds, commodities, etc.), which marked a huge change from the preceding 100 years. From 1890 to 1990, inflation-adjusted home prices rose only 12%, which is hard to imagine with the massive price growth, up 94% nationally, that we’ve seen over the past 10 years. All that to say, home prices over time really only move in one direction, which is up.
Different regions and individual houses vary from the broad national trends, so we’ve included a Local Lowdown below to provide you with in-depth coverage for your area. As always, we will continue to monitor the housing and economic markets to best guide you in buying or selling your home.
Big Story Data
The Local Lowdown
Quick Take:
- The median prices rose across most of the Bay Area in September as lower mortgage rates brought more buyers and sellers back to the market. Typically, prices contract this time of year, highlighting the outsized effect mortgage rates have on the market.
- Total inventory in the Bay Area increased, with the exception of the North Bay, as more sellers came to the market. However, we expect inventory to decline and the overall market to slow in the fourth quarter.
- Months of Supply Inventory has remained below three months of supply for single-family homes, indicating a sellers’ market, with the exception of Napa and Santa Cruz, which favor buyers.
Note: You can find the charts/graphs for the Local Lowdown at the end of this section.
The median prices rose month over month across most of the Bay Area
In the Bay Area, home prices haven’t been largely affected by rising mortgage rates after the initial period of price correction from April 2022 to January 2023. Low, but growing, inventory and high demand have more than offset the downward price pressure from higher mortgage rates. Year to date, in September, the median single-family home and condo prices rose across the Bay Area with the exception of single-family homes in Napa and condos in Sonoma, which are slightly lower. Year over year, prices increased most significantly for single-family homes in Silicon Valley and San Francisco. Prices typically peak in the summer months, so we don’t expect new all-time highs for the rest of this year. However, we do expect some minor price contraction in the fourth quarter.
High mortgage rates soften both supply and demand, but home buyers and sellers seemed to tolerate rates near 6% much more than around 7%. Now that rates are declining, sales could get a little boost, but the housing market typically slows in the fourth quarter of any year.
New listings rose in September in most of the Bay Area, causing inventory to increase
In most of the Bay Area, the housing market has looked progressively healthier with each passing month of 2024. We’re far enough into the year to know that inventory levels are about as good as we could’ve hoped in the North Bay, East Bay, and Silicon Valley. In 2023, single-family home inventory followed fairly typical seasonal trends, but at significantly depressed levels. Low inventory and fewer new listings slowed the market considerably last year. Even though sales volume this year was similar to last, far more new listings have come to the market, which has allowed inventory to grow. In San Francisco specifically, a significant amount of new listings tend to hit the market in January and September in any given year so new listings aren’t unexpected in September. Compared to this time last year, new listings are even and inventory is still down 10%.
Typically, inventory begins to increase in January or February, peaking in July or August before declining once again from the summer months to the winter. It’s looking like 2024 inventory, sales, and new listings will resemble historically seasonal patterns, and at more normal levels than last year. However, inventory still increased in September, which is atypical. Falling mortgage rates have brought buyers and sellers back to the market during the time of year the market tends to slow significantly.
Months of Supply Inventory indicated a sellers’ market in most of the Bay Area
Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes listed on the market to sell at the current rate of sales. The long-term average MSI is around three months in California, which indicates a balanced market. An MSI lower than three indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). The Bay Area markets tend to favor sellers, which is reflected in their low MSIs. Currently, MSI is below three months of supply (a sellers’ market) in every Bay Area county, except for single-family homes in Napa and Santa Cruz, which favor buyers.
