East Bay (Alameda & Contra Costa) Housing Market Update - November 2024
The Big Story Sellers are coming back to the market Quick Take: After the election of Donald J. Trump, bond prices increased in anticipation of his inflationary policy positions. Interest rates are the most significant factor financially in purchasing a home for most buyers, and as we’ve seen over the past two years, higher rates translate to lower sales. From October 1 – November 7, the average 30-year mortgage rate rose 71bps, landing at 6.79%. The Fed cut rates by 50 bps in September and another 25 bps during the Fed’s November 6-7 meeting. Sales declined 1.0% month over month, falling to the lowest level in modern history, while inventory rose to its highest level since 2020. The spike in mortgage rates should further slow the market in the winter months. 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. Bond and mortgage rates are risings as the Fed is cutting rates Let’s talk about rates. The benchmark 10-year Treasury rate rose by as much as 18 basis points the day after the election, pushing the overall rate on the bond to 4.47%. The price of bonds and their yield move inversely, with prices falling as rates rise. For example, if you have a $100 bond paying 10% and then rates rise to 20%, the original $100 at 10% becomes less valuable because now investors could get a $100 bond that pays 20%. A rising yield on Treasury bonds raises the cost of the U.S. federal government when it borrows new money or rolls over existing debts. In short, the cost of borrowing increases and, therefore, more money is needed to pay interest rather than paying for tangible government programs. The 30-year mortgage rate trends with the 10-year Treasury rate, usually about 2% higher. As of November 7, 2024, the average 30-year mortgage rate was 6.79%, a significant increase from 6.08% at the end of September. In just over a month’s time, the monthly payment on a $500,000 loan increased 7.7%. But the question you may be asking is, why did rates go up even in the wake of the Fed cutting the federal funds rate? Real interest rate returns account for inflation, so the $100 bond at the nominal rate of 10% can be rewritten as 10% minus inflation (currently 2.4%) to get the real return of the investment. If inflation is expected to rise, the nominal rate can increase, so real return is unaffected or, at least, less affected,, in which case real return would decrease. Trump’s economic plans are inflationary and, therefore, increase rates. The U.S. economy is operating at close to capacity, and unemployment is low. Tax cuts will increase demand, but higher tariffs will push up prices. The U.S. is a net importer, so blanket tariffs will drive up the prices of an incredible number of day-to-day goods. Higher inflation will result, meaning the Federal Reserve will be more cautious about cutting interest rates. Currently, mortgage rates rise higher when the housing market already tends to slow. Typically, the holiday season experiences fewer sales then picks up again in January. A month ago, rates were dropping, and we were extremely bullish on the spring market. However, if rates rise above 7% or higher, the market will be slower than usual. Since the market has already been slower than usual, a further slowdown coupled with higher inflation would likely slow price growth next 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 price contractions in the third and now fourth quarter are in line with seasonal expectations. Prices will likely decline through January 2025. Total inventory decreased 11.7% month over month, as new listings fell and sales increased. However, we expect inventory to decline and the overall market to slow over the next three months. Months of Supply Inventory still indicates a sellers’ market in the East Bay for single-family homes, but for condos, MSI implies the market now favors buyers. Note: You can find the charts/graphs for the Local Lowdown at the end of this section. Median home prices declined slightly month over month in the East Bay 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 to date, in October, the median single-family home and condo prices rose across the East Bay. Year over year, for single-family homes, prices rose 3% in Alameda and 6% in Contra Costa, and for condos, prices were down 3% in Alameda and up 5% 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 continue to decline slightly for the next three months. High mortgage rates soften both supply and demand, but home buyers 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 October. Now, rates are far closer to 7% than 6%, so we expect sales to slow starting in November. Sales rose, while inventory and new listings fell The 2024 housing market has looked progressively healthier with each passing month. We’re far enough into the year to know that inventory levels are about as good as we could’ve hoped, although single-family home inventory is still lower than we would like. 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 this year was similar to last, far more new listings have come to the market, which has allowed inventory to grow. Condo inventory even reached a four-year high in September before declining in October. For single-family homes, inventory is up 15% year over year. 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. Sales and homes under contract rose in October, which is fairly normal from a historical standpoint. We expect sales to slow over the next three months. Months of Supply Inventory in October 2024 indicated a sellers’ market for single-family homes and a buyers’ market for condos 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. For condos, MSI has trended higher in 2024, causing a shift from a sellers’ market to a buyers’ market. Although single-family home MSI has moved slightly higher, it’s still low, indicating a sellers’ market. Local Lowdown Data
Greater Bay Area Housing Market Update - November 2024
The Big Story Sellers are coming back to the market Quick Take: After the election of Donald J. Trump, bond prices increased in anticipation of his inflationary policy positions. Interest rates are the most significant factor financially in purchasing a home for most buyers, and as we’ve seen over the past two years, higher rates translate to lower sales. From October 1 – November 7, the average 30-year mortgage rate rose 71bps, landing at 6.79%. The Fed cut rates by 50 bps in September and another 25 bps during the Fed’s November 6-7 meeting. Sales declined 1.0% month over month, falling to the lowest level in modern history, while inventory rose to its highest level since 2020. The spike in mortgage rates should further slow the market in the winter months. 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. Bond and mortgage rates are risings as the Fed is cutting rates Let’s talk about rates. The benchmark 10-year Treasury rate rose by as much as 18 basis points the day after the election, pushing the overall rate on the bond to 4.47%. The price of bonds and their yield move inversely, with prices falling as rates rise. For example, if you have a $100 bond paying 10% and then rates rise to 20%, the original $100 at 10% becomes less valuable because now investors could get a $100 bond that pays 20%. A rising yield on Treasury bonds raises the cost of the U.S. federal government when it borrows new money or rolls over existing debts. In short, the cost of borrowing increases and, therefore, more money is needed to pay interest rather than paying for tangible government programs. The 30-year mortgage rate trends with the 10-year Treasury rate, usually about 2% higher. As of November 7, 2024, the average 30-year mortgage rate was 6.79%, a significant increase from 6.08% at the end of September. In just over a month’s time, the monthly payment on a $500,000 loan increased 7.7%. But the question you may be asking is, why did rates go up even in the wake of the Fed cutting the federal funds rate? Real interest rate returns account for inflation, so the $100 bond at the nominal rate of 10% can be rewritten as 10% minus inflation (currently 2.4%) to get the real return of the investment. If inflation is expected to rise, the nominal rate can increase, so real return is unaffected or, at least, less affected,, in which case real return would decrease. Trump’s economic plans are inflationary and, therefore, increase rates. The U.S. economy is operating at close to capacity, and unemployment is low. Tax cuts will increase demand, but higher tariffs will push up prices. The U.S. is a net importer, so blanket tariffs will drive up the prices of an incredible number of day-to-day goods. Higher inflation will result, meaning the Federal Reserve will be more cautious about cutting interest rates. Currently, mortgage rates rise higher when the housing market already tends to slow. Typically, the holiday season experiences fewer sales then picks up again in January. A month ago, rates were dropping, and we were extremely bullish on the spring market. However, if rates rise above 7% or higher, the market will be slower than usual. Since the market has already been slower than usual, a further slowdown coupled with higher inflation would likely slow price growth next 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 prices rose in Silicon Valley and San Francisco, while prices in the North and East Bay declined. Typically, prices contract this time of year, highlighting the outsized effect mortgage rates have on the market. Total inventory in the Bay Area declined, as sales increased and fewer new listings came to the market. However, we expect inventory to decline and the overall market to slow over the next three months. 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. Median prices rose in Silicon Valley and San Francisco as sales increased 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 October, 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 Marin and 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 expect some minor price contraction through January 2025. High mortgage rates soften both supply and demand, but home buyers 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 October. Now, rates are far closer to 7% than 6%, so we expect sales to slow starting in November. Sales rose across the Bay Area, while new listings and inventory declined 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 number of new listings tend to hit the market in January and September in any given year, so new listings aren’t unexpected in September. Sales rose across the Bay Area, but San Francisco sales were particularly notable, up 50% month over month. 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. Falling mortgage rates have brought buyers and sellers back to the market during the time of year the market tends to slow significantly. Sales and homes under contract rose in October, which is fairly normal from a historical standpoint. We expect sales to slow over the next three months. 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. Local Lowdown Data
Santa Clara, Santa Cruz, San Mateo Housing Market Update - October 2024
The Big Story 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: Median home prices are slightly below peak levels across Silicon Valley. We expected price contraction after peaking in the second quarter, which is the seasonal norm. Prices will likely decline for the rest of the year. Total inventory rose 5.8% month over month, as new listings rose due to lower rates and more sellers coming back to the market. However, we expect inventory to decline and the overall market to slow in the fourth quarter. Months of Supply Inventory indicated a sellers’ market for single-family homes in San Mateo and Santa Clara and a buyers’ market in Santa Cruz.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 to date and year over year In Silicon Valley, 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 counties. Year over year, prices increased most significantly for single-family homes, up 6% in San Mateo, 3% in Santa Clara, and 8% in Santa Cruz. Prices typically peak in the summer months, and this year San Mateo and Santa Clara reached record highs in May, 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, causing inventory to increase The 2024 housing market has looked progressively healthier with each passing month. We’re far enough into the year to know that inventory levels are about as good as we could’ve hoped, although single-family home inventory is still lower than we would like. 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 this year was similar to last, far more new listings have come to the market, which has allowed inventory to grow. However, for single-family homes, even though inventory is up 16% year over year, it’s still 21% lower than it was two years ago. 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 San Mateo and Santa Clara 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 Silicon Valley market tends to favor sellers, which is reflected in its low MSI. In 2024, Silicon Valley MSI moved higher, particularly in Q2. In September, MSI indicated a sellers’ market for single-family homes in San Mateo and Santa Clara and a buyers’ market in Santa Cruz. For condos, Santa Clara favors sellers, Santa Cruz favors buyers, and San Mateo is more balanced. Local Lowdown Data Source: Side
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