June 2024 Alameda & Contra Costa Real Estate Analysis: What You Need to Know
The Big Story Record high median home prices once again Quick Take: Since January 2024, prices have climbed 10.6%, reaching an all-time high in May. Similarly, the median list price per square foot hit an all-time high in April and again in May 2024. Affordability for homes has reached a record low. In May, the average 30-year mortgage rate fell to 7.03%, dropping 0.19% from the 2024 high reached in April. The Fed has expressed hesitation around lowering rates due to higher-than-desired inflation. Currently, we expect rates to remain between 6% and 8% for the rest of 2024. Sales fell 1.9% month over month, while inventory rose 9.0%. The combination of rising prices and high interest rates has continued to price more buyers out of the market, slowing sales. Note: You can find the charts & graphs for the Big Story at the end of the following section. Another market slowdown According to the National Association of Realtors® (NAR), the median sales price for existing homes grew 5.6% to $418,900 between May 2023 and the present — the 11th consecutive month of year-over-year price growth, and the highest median price ever reached. Typically, the median price peaks in June each year, so we will likely see prices climb even higher when the data comes in for this month. In addition to NAR, the Case-Shiller 20-City Composite Home Price Index, which measures the aggregate price level of homes in the 20 largest metropolitan statistical areas, has reached a new high for the eighth month in a row. The combination of elevated mortgage rates and rising prices has brought affordability to an all-time low, which translates to fewer sales and growing inventory. However, at the same time, homes are spending less and less time on the market. Demand is still high relative to supply, even though inventory is building. The buyers that haven’t been priced out of the market are moving quickly on homes that suit them. Despite the high demand and quick market, there are simply fewer buyers in the market. Higher mortgage rates can only lead to fewer market participants. On the bright side, inventory growth is great news for the wildly undersupplied U.S. housing market. According to data from realtor.com, inventory reached its highest level since August 2020. The market is still broadly undersupplied, but the increasing inventory level should cause rising home prices to slow. Decreasing home prices mid-year is also normal on a seasonal basis. 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 slightly 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. The average 30-year mortgage rate began the year at 6.62% and landed at 7.03% at the end of May, marking the third year mortgage rates have been elevated. At the start of the year, rate expectations were far different from those today. In January, inflation still appeared to be trending lower, and economists were predicting rate cuts as early as March. However, in hindsight, inflation stopped trending lower in June 2023 and has held fairly steady at around 3.3% since then. The Fed targets an inflation rate of 2%, so we aren’t expecting rate cuts anytime soon. In fact, the safest bet may be to not expect any rate cuts in 2024. The Fed’s dual mandate aims for stable prices (inflation ~2%) and low unemployment, so it’s all about inflation, especially because the job market is still strong. During the Fed’s May meeting, the Federal Reserve Board unanimously voted to hold policy rates steady for the sixth consecutive time, leaving the federal funds target rate unchanged at 5.25% to 5.50%. Although this letter was written before the June 11-12 Fed meeting, we are confident the Fed will hold rates steady. If there’s a silver lining, it’s that even though rate cuts are extremely unlikely, rate hikes are even less probable. 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 East Bay. As more new listings come to market, we expect prices across most of the East Bay to continue rising, though they will likely remain slightly below the record highs. Active listings, sales, and new listings rose in the East Bay month over month, which are all beneficial for the housing market. We expect inventory to increase into the summer and return to a more normal market after the slowdown experienced over the past year and a half. Months of Supply Inventory still indicates a sellers’ market in the East Bay, although more new listings have alleviated some of the excess demand in the area. Note: You can find the charts/graphs for the Local Lowdown at the end of this section. The median single-family home price rose year over year in the East BayIn the East 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. Month over month, in May, the median single-family home price fell 2% in Alameda but rose 1% in Contra Costa. Year over year, prices were up 9% in Alameda and 5% in Contra Costa. Condo prices rose slightly in Alameda but declined in Contra Costa from April to May. We expect prices in the East Bay to remain slightly below peak this year, although new highs are possible in June or July 2024. Low, but rising inventory is buoying prices as buyers are better able to find the best match. High mortgage rates soften both supply and demand, but home buyers and sellers seemed to tolerate rates above 6%. Now that rates are above 7%, sales could slow once again during the time of the year when sales tend to be at their highest. Inventory, sales, and new listings rose for the fourth month in a row Since the start of 2023, single-family home inventory has 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 and sales peaked in May, while inventory peaked in October. New listings have been exceptionally low, so the little inventory growth in 2023 was driven by softening demand. In December 2023, inventory and sales dropped, but more new listings have come to the market in 2024, which has driven the significant increase in both inventory and sales so far this year. The market is already looking healthier, and we expect more new listings and sales in the summer months. With the current inventory levels, the number of new listings coming to market is a significant predictor of sales. New listings rose 8% month over month, and sales followed suit, increasing 7%. Year over year, inventory is up 32%. Months of Supply Inventory in May 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, which is reflected in its low MSI. MSI trended higher in the second half of 2023, moving above three months of supply for condos. From January to April 2024, however, the East Bay MSI fell significantly before rising slightly in May, indicating the housing market still favors sellers. Local Lowdown Data
East Bay (Alameda & Contra Costa) Housing Market Update - May 2024
The Big Story Rates ↑, Sales ↓ Quick Take: Prices have already risen 6.8% over the past three months, landing only 2.2% below the all-time high reached in June 2022. Additionally, the median list price per square foot hit an all-time high in April 2024. Mortgage rates rose nearly a half a percentage point in April due to changing Fed rate cut expectations, hitting the highest level yet in 2024. The Fed has expressed that inflation is taking longer to settle at 2% than originally expected, so higher rates will likely be here for most — if not all — of 2024.Sales fell 4.3% month over month, and inventory rose 4.7%. The combination of rising prices and interest rates priced buyers out of the market, which dropped sales. Note: You can find the charts & graphs for the Big Story at the end of the following section. Another market slowdown The average 30-year mortgage rate began the year at 6.62%, marking the start of the third year mortgage rates have been elevated. However, the rate expectations for 2024 in January were far different from those today. In January, inflation was still trending lower and economists were predicting rate cuts as early as March. Unfortunately, the inflation rate stopped falling around 3%, never quite reaching the 2% target, which has caused the Fed to delay cutting the federal funds rate, which indirectly, but significantly, influences credit markets. The past two months, in fact, inflation has increased year over year, which isn’t ever going to move the timetable for rate cuts earlier. During its May meeting, the Federal Reserve unanimously voted to hold policy rates steady for the sixth consecutive time, leaving the federal funds target rate unchanged at 5.25% to 5.50%. Importantly, Fed Chair Jerome Powell emphasized that it’s unlikely that the next policy rate move will be a hike; it’s more likely that rates remain steady and with less clarity of cuts. The Fed’s dual mandate aims for stable prices (inflation ~2%) and low unemployment. The jobs market is still strong, so really, it’s all about inflation. The Fed’s change of tune has led to much higher mortgage rates. Mortgage rates have risen 0.6% since the start of the year, and two thirds of that increase happened in April. Rising rates, especially quickly rising rates, only slow the housing market. As we entered May, the average 30-year mortgage rate hit 7.22% — the highest level in 2024 and not too far off from the 23-year high of 7.79% hit last year. During April, prices and rates increased, thereby decreasing affordability. For buyers planning to finance a home, the 0.38 percentage point increase that occurred in April affects the monthly cost of a home dramatically. When we couple the median price increase with the mortgage rate increase in just the month of April, the monthly cost increased 7%. If we compare the month cost in January to April, the monthly cost rose 13%. Rates seem to be able to inflate prices and increase sales when they’re low, but when they’re high, they only slow sales — or, at least, that’s been the experience over the past four years. Inventory is, of course, driving the disconnect. Demand is still high relative to supply, even though inventory is growing. However, as prices increase, the buyers who haven’t been priced out of the market become pickier, and fewer but pickier buyers creates an overall slowdown. The market was showing signs of a more normal spring with sales and inventory rising, but the recent rate increases dropped sales last month, which is almost never seen in the spring. Even though mortgage rates have been elevated for long enough that it feels more normal, mortgage rates above 7% will naturally give potential buyers and sellers pause before entering the housing market. 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 East Bay. As more new listings come to market, we expect prices to continue rising and to reach new highs in the summer months. Active listings, sales, and new listings rose in the East Bay month over month, which are all beneficial for the housing market. We expect inventory to increase in the first half of the year, and possibly return to a more normal market, after the slowdown experienced over the past year and a half. Months of Supply Inventory declined sharply from January to April, indicating the market is heating up. MSI indicates a sellers’ market in the East Bay. Note: You can find the charts/graphs for the Local Lowdown at the end of this section. Median home prices have increased significantly in 2024 In the East 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. Month over month, in April, the median single-family home price remained unchanged in Alameda but rose 6% in Contra Costa. Year over year, prices were up 15% in Alameda and 4% in Contra Costa. Condo prices declined month over month in both Alameda and Contra Costa. We expect prices in the East Bay to remain slightly below peak until the early summer, but prices will almost certainly reach new highs in June or July 2024. Low, but rising inventory is only increasing prices as buyers are better able to find the best match. High mortgage rates soften both supply and demand, but homebuyers seemed to tolerate rates above 6%. Now that rates are above 7%, sales may slow slightly in the next couple of months, which isn’t great for the market, but isn’t it terrible, either, as it may allow inventory to build in a massively undersupplied market. Single-family home inventory, sales, and new listings increased month over month Since the start of 2023, single-family home inventory has 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 and sales peaked in May, while inventory peaked in October. New listings have been exceptionally low, so the little inventory growth in 2023 was driven by softening demand. In December 2023, inventory and sales dropped, but more new listings have come to the market in 2024, which has driven the significant increase in sales so far this year. The market is already looking healthier, and we expect more new listings and sales in Q2 2024. With the current inventory levels, the number of new listings coming to market is a significant predictor of sales. New listings rose 25% month over month, and sales followed suit, increasing 26%. Year over year, inventory is up 24%, and sales are up 17%. Demand is clearly high in the East Bay, but more supply is needed for a healthier market. Months of Supply Inventory fell in April 2024, indicating 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, which is reflected in its low MSI. MSI trended higher in the second half of 2023, moving above three months of supply for condos. From January to April 2024, however, the East Bay MSI fell significantly, indicating the housing market now favors sellers. Local Lowdown Data
East Bay (Alameda & Contra Costa) Housing Market Update - April 2024
The Big Story End of an era: What’s next for agent commissions? Quick Take: The National Association of Realtors® (NAR) settled a major lawsuit in March. It’s still too early to tell exactly how real estate will be affected, since the courts have yet to approve the settlement, but we’ll shed some light on what’s happening. Mortgage rates fell slightly in March, closing the month at 6.79%. The Fed continued its wait-and-see approach to rate cuts during the March meeting, holding the federal funds rate steady and stating that they need more data indicating that the economy is continuing to improve. Sales increased 9.5% month over month, and inventory rose 5.9%. More homes are coming to the market and quickly translating to more sales. New listings rose by 15% month over month, which only benefits the market. Note: You can find the charts & graphs for the Big Story at the end of the following section. Paradigm shift after NAR settlement On March 15, 2024, the National Association of Realtors® (NAR) announced a $418 million settlement with a nationwide class of plaintiffs in an antitrust lawsuit. The lawsuit centered around claims that Realtors® conspired to artificially inflate commission rates by not being transparent about how buyer’s agents are compensated. So, what’s changing about how buyer’s agents are compensated? Today, when a seller’s agent lists a home on a REALTOR®-owned Multiple Listing Service (MLS), they are able to include an offer of compensation to the buyer’s agent as part of the listing. Moving forward, this compensation cannot be advertised on the MLS. The practice of putting the buyer’s agent commission percentage on the MLS has led many to believe that number is fixed. And many agents have not done a good job explaining that commissions are negotiable. If the court approves NAR’s settlement, agents will no longer be able to advertise any buyer’s agent’s compensation when they list a home on a REALTOR®-owned MLS. This will encourage agents to have more in-depth conversations with their clients around compensation, promoting greater transparency across the industry. Lastly, buyers will now be required to sign buyer’s agency agreements to ensure they fully understand the buyer-broker relationship, obligations between broker and client and how their buyer’s agent is compensated. All in all, it’s too soon to tell exactly how the proposed rule change will impact the housing market. What we do know is that there are too few homes and too much demand — even with current mortgage rates — for home sellers to worry about competing on price, generally speaking. Speaking of mortgage rates, the Federal Reserve held rates steady at the March meeting, which was in line with expectations. With the information from Fed Chair Powell, we are now expecting rate reductions after the June or July Fed meetings. The Fed’s dual mandate aims for stable prices (inflation ~2%) and low unemployment. Employment has shown its persistent strength, and inflation is coming down, but the Fed wants more good data before lowering rates because they want to avoid raising rates once they’ve started lowering them. Overall, the market is starting to heat up, which is what we expect and want to see this time of year. Mortgage rates have been elevated for long enough now that buyers and sellers are less hesitant to enter the market. And rate cuts will come in the second half of the year, allowing for refinancing in the near future. As a result, we are expecting far more transactions than last year and a healthier market. 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 East Bay. As more new listings come to market, we expect prices to continue rising and to reach new highs in the second quarter. Active listings, sales, and new listings rose in the East Bay month over month, which are all beneficial for the housing market. We expect inventory to increase in the first half of the year, and possibly return to a more normal market, after the slowdown experienced over the past year and a half. Months of Supply Inventory declined sharply from February to March, indicating the market is heating up. MSI indicates a sellers’ market in the East Bay. Note: You can find the charts/graphs for the Local Lowdown at the end of this section. Median prices rose in March 2024, and we expect them to rise higher in Q2 2024 In the East 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. Month over month, in March, the median single-family home price rose 8% in Alameda and 6% in Contra Costa. Year over year, prices were up 16% in Alameda and 10% in Contra Costa. Condo prices were up month over month and year over year in Contra Costa, though they dropped in Alameda. We expect prices in the East Bay to remain slightly below peak until the early summer, but prices will almost certainly reach new highs in the second quarter of 2024. Low, but rising inventory is only increasing prices as buyers are better able to find the best match. High mortgage rates soften both supply and demand, but at this point rates have been above 6% for 16 months, and rate cuts will likely occur sometime this year. Potential buyers have had longer to save for a down payment and will have the opportunity to refinance in the next 12-24 months, which makes current rates less of a limiting factor. However, high demand can only do so much for the market if there isn’t supply to meet it. Single-family home and condo inventory, sales, and new listings increased month over month Since the start of 2023, single-family home inventory has 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 and sales peaked in May, while inventory peaked in October. New listings have been exceptionally low, so the little inventory growth in 2023 was driven by softening demand. In December 2023, inventory and sales dropped, but more new listings came to the market in 2024, which has driven the significant increase in sales in Q1 2024. The market is already looking healthier, and we expect more new listings and sales in Q2 2024. With the current low inventory levels, the number of new listings coming to market is a significant predictor of sales. New listings rose 22% month over month, and sales followed suit, increasing 19%. Year over year, inventory is up 6%; however, sales are still down 13%. The next three months will be critical to our understanding of the market. More supply will mean a healthier market and a more normal housing market in 2024. Months of Supply Inventory fell in March 2024, indicating 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, which is reflected in its low MSI. MSI trended higher in the second half of 2023, moving above three months of supply for condos. In February and March 2024, however, the East Bay MSI fell significantly, indicating the housing market now favors sellers. We can also use percent of list price received as another indicator for supply and demand. Typically, in a calendar year, sellers receive the lowest percentage of list price during the winter months, when demand is lowest. Winter months tend to have the lowest average sale price (SP) to list price (LP), and the summer months tend to have the highest SP/LP. In Q1 2024, SP/LP was 4% higher than last year, meaning we expect sellers overall to receive a higher percentage of the list price throughout all of 2024 than they did in 2023. Local Lowdown Data
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