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The Big Story
Elevated rates are here to stay
Quick Take:
- Home prices declined modestly in Q4 2024, showing atypical price stability in the second half of the year. Because prices didn’t contract significantly in the second half of 2024, they will easily rise to new highs in 2025.
- Since September 2024, the Fed has cut rates by 1%, bringing the interest rate that banks charge each other for short-term loans to a range of 4.25% to 4.5%. In 2025, we only expect the federal funds rate to decline by another 25 to 50 bps.
- Sales rose 4.8% month over month, the swiftest pace since March. Sales accelerated 6.1% from one year ago, the largest year-over-year gain since June 2021. At the same time, inventory fell 2.9% but is still near its highest level in the past four years. Higher inventory levels created more opportunity for 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.
Economic (policy) uncertainty elevated mortgage rates
The Federal Reserve’s interest rate cuts in 2024 provided some relief to some borrowers, but mortgage rates have remained stubbornly high. As of January 2, 2025, the average 30-year fixed-rate mortgage climbed to 6.91%, its highest level in nearly six months, according to Freddie Mac. Even with the Fed lowering the federal funds rate by a full percentage point over the past four months, mortgage rates have not fallen proportionally, remaining about 0.3 percentage points higher than their 6.6% average in January 2024.
This disconnect is largely due to factors beyond the Fed's control, such as economic growth, inflation concerns, and fluctuations in the 10-year Treasury bond yield, which heavily influence mortgage rates. Economists predict that meaningful relief for homebuyers is unlikely in 2025, with rates expected to remain elevated between 6% and 7%. Lawrence Yun, chief economist at the National Association of Realtors, forecasts the average 30-year fixed mortgage rate will hover around 6.5% throughout the year.
Adding to the uncertainty, President-elect Donald Trump's proposed economic policies — potentially including sweeping tariffs on foreign goods and additional tax cuts — could reignite inflation. If inflation accelerates, the Fed will almost certainly curtail rate cuts. However, some analysts suggest Trump's tariff threats may be strategic bargaining tools in trade negotiations rather than definitive actions. If inflation continues to ease, the Fed could maintain its trajectory of lowering rates in 2025. At its December meeting, the central bank projected two additional rate cuts for the year, down from its earlier expectation of four. Inflation increased over the past two months, so we are inclined to side with the Fed’s assumption that two rate cuts are prudent in 2025.
Despite economic policy uncertainty and increasing mortgage rates, home sales have increased substantially over the past two months. We attribute this rise to two main factors: much more inventory and the market’s acceptance of higher mortgage rates. Higher inventory has allowed potential buyers to more easily find the home that’s right for them with less competition, creating a better all-around buying experience. Additionally, buyers and sellers have broadly accepted that rates will be higher than they might like for some time, and waiting for rate drops isn’t worth the time anymore. There is also a potential third factor around economic sentiment; roughly half the country thinks more highly of the economy due to the incoming administration. For better or worse, vibes are important, and buying a home is often as much or more of an emotional choice as it is a financial one.
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 rose in 2024, following historical seasonal trends. Single-family home prices in Contra Costa and condos in Alameda experienced the largest gains.
- Total inventory decreased 32.5% month over month, as new listings fell more than sales. We expect inventory to continue to decline in January and the overall market to slow due to lack of supply.
- Months of Supply Inventory plummeted in Q4 2024 due to the lack of inventory. Currently, MSI indicates a strong sellers’ market for single-family homes and condos.
Note: You can find the charts/graphs for the Local Lowdown at the end of this section.
The median single-family home prices are up year over year
In the East Bay, home prices haven’t been largely affected by rising mortgage rates after the initial period of price correction from May 2022 to January 2023. Low, but growing inventory and high demand have more than offset the downward price pressure from higher mortgage rates. Year over year, for single-family homes, prices were flat in Alameda and up 9% in Contra Costa, and for condos, prices were up 12% in Alameda and 8% in Contra Costa. Prices typically peak in the summer months, and the mild contraction after the post-summer peak has fallen in line with expectations. Home prices will likely decline slightly in January before rising again into the spring.
High mortgage rates soften both supply and demand, but homebuyers and sellers seemed to tolerate rates near 6% much more than around 7%. Mortgage rates fell significantly from May through September, but rose significantly in the fourth quarter of 2024. Now, rates are far closer to 7% than 6%, so we expect sales to slow further.
Inventory, new listings, and sales fell in December
The 2024 housing market looked progressively healthier with each passing month until Q4. The promising build in inventory during the first nine months of the year was wiped out, and East Bay inventory fell near record lows in December.
In 2023, single-family home and condo 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 2024 was similar 2023, far more new listings came to the market, which has allowed inventory to grow. Condo inventory even reached a four-year high in September before declining in Q4. For single-family homes, inventory is up slightly year over year, but inventory fell significantly month over month as new listings declined at a greater magnitude than sales.
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.
Months of Supply Inventory in December 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). The East Bay market tends to favor sellers, especially for single-family homes, which is reflected in its low MSI. In Q4, MSI dropped across the East Bay and now indicates a sellers’ market.
