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The Big Story
Median home price hits record high for the second month
Quick Take:
- Since January 2024, prices have climbed 13.6%, reaching an all-time high in May and another in June 2024. Similarly, the monthly cost of financing has hit a record high, meaning that home affordability is at a record low.
- In June, the average 30-year mortgage rate declined to 6.86%, dropping 0.17% from the 2024 high reached in April. The Fed may cut rates as early as September, but the magnitude of the cut will be small, likely 0.25% this year. Currently, we expect rates to remain between 6% and 8% for the rest of 2024.
- Sales fell 0.7% month over month, while inventory rose 6.7%. The combination of rising prices and high interest rates has kept sales historically low. Since January 2023, sales have trended more horizontally, although we expect sales to decline until spring 2025.
Note: You can find the charts & graphs for the Big Story at the end of the following section.
Surprisingly unsurprising: high rates, high prices, high inventory
In June, prices rose for the fifth month in a row, peaking at an all-time high in June 2024. This also marks the 12th consecutive month of year-over-year price growth. According to typical seasonality, the median price peaks in June, so we expect prices to decline starting in July. Over time, prices generally move much higher in the first half of the year than they decline in the second half; you can think of it as two steps forward and one step back, year after year. Last year, for example, prices rose 13.7% from January 2023 to June 2023, then fell 7.7% from June 2024 to January 2024, which was still a year-over-year gain of 4.9%. This year will likely look similar, although we don’t think that prices will decline as much in the second half of 2024 as they did in 2023, especially if the Fed cuts rates in the fall. Even a minor rate cut, like the expected 0.25%, could significantly affect mortgage rates, as it would signal the beginning of more and more cuts.
For the moment though, we are starting summer with a combination of elevated mortgage rates and record high prices, which have brought affordability to an all-time low. Low affordability has resulted in fewer sales and growing inventory. Demand is still high relative to supply, even though inventory is building. We know that demand is still high because buyers are still buying at peak prices. From a historical context, we should’ve expected this to happen. We took a look at data from the 1980s to see how much home prices appreciated during a decade-long period of the highest mortgage rates in history. From January 1, 1980, to January 1, 1990, the 30-year mortgage rate ranged from 9.03% to 18.63%, with an average rate of 12.71%. Although home prices didn’t increase dramatically like they have in the recent past, inflation-adjusted home prices still increased about 8% during that decade. Today, with the strong U.S. economy, it was never very likely for home prices to stagnate or decline due to higher mortgage rates. However, high rates have slowed sales volume considerably, which has caused inventory to grow.
Overall, inventory growth is great news for the undersupplied U.S. housing market. According to data from the National Association of REALTORS® (NAR), inventory reached its highest level since August 2022. The market is still broadly undersupplied, but the increasing inventory level should cause rising home prices to slow. In the pre-pandemic seasonal trends, sales, new listings, inventory, and price would roughly all rise in the first half of the year and decline in the second half of the year. Sales and new listings have been far lower than usual since mortgage rates started climbing, which is to be expected. Because we don’t anticipate sales to pick up until the spring of 2025, inventory could continue to grow in the second half of the year.
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:
- Median home prices are slightly below peak levels across the North Bay. As more new listings come to market, we expect prices across most of the North Bay to continue rising and to reach new highs in July.
- Active listings, sales, and new listings declined in the North Bay month over month, which is a little early. This is likely an early sign that inventory will remain tight for the rest of the year.
- Months of Supply Inventory is increasing, especially for condos, which is a shift that favors buyers. MSI still implies a sellers’ market for single-family homes, however, in most of the North Bay.
Note: You can find the charts/graphs for the Local Lowdown at the end of this section.
Median single-family home prices near record highs in the North Bay
In the North Bay, low inventory and high demand have more than offset the downward price pressure from higher mortgage rates, and prices generally haven’t experienced larger drops due to higher mortgage rates. Year to date, in June, the median single-family home price rose across the North Bay. Year over year, prices increased most significantly in Napa, up 21% for single-family homes and 47% for condos. The median single-family home prices in the North Bay are fairly close to their all-time highs, especially close in Napa. Prices in Solano and Sonoma could easily reach new highs in July; Marin could do the same, but we view that as less likely at this time. Additionally, inventory is so low that it will create price support as supply declines in the second half of the year.
High mortgage rates soften both supply and demand, but home buyers and sellers seemed to tolerate rates above 6%. Now that rates are near 7% again, sales are slowing during the time of the year when sales tend to be at their highest. This phenomenon isn’t great for the market, but it isn’t terrible, either, as it may allow inventory to build in a massively undersupplied market.
Inventory, sales, and new listings declined month over month
In 2023, single-family home inventory followed fairly typical seasonal trends, but at significantly depressed levels. Low inventory and fewer new listings have slowed the market considerably. Typically, inventory peaks in July or August and declines through December or January, but the lack of new listings prevented meaningful inventory growth. Last year, new listings peaked in May, sales peaked in June, and inventory peaked in September. New listings were exceptionally low, so the little inventory growth in 2023 was driven by softening demand. In January 2024, single-family home and condo inventory and sales dropped, but more new listings came to the market, which drove a higher number of sales in February. Sales continued to climb higher in March, April, and May, along with new listings. This year, inventory growth looks much healthier than last year, but sales and new listings may have peaked a month early — a sign that supply will remain tight in the second half of the year.
With the current inventory levels, the number of new listings coming to market is a significant predictor of sales. New listings declined 22% month over month, and sales followed suit, falling 2%. Year over year, inventory is up 20%.
Months of Supply Inventory in June 2024 indicated a sellers’ market
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). MSI trended higher in the second half of 2023, hovering between a balanced market and a sellers’ market. MSI in the North Bay market has trended horizontally for the past nine months. In June, MSI indicated the housing market favored sellers.