Marin, Napa, Solano, Sonoma North Bay 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: The median single-family home prices are still near their record highs with the exception of Marin, which peaked at over $2.2 million in 2022. We expect prices to contract through January 2025. Total inventory fell 22.9% month over month, as homes coming under contract and sales spiked in October along with fewer new listings. We expect inventory to decline and the overall market to slow for the next three months. Months of Supply Inventory fell across the North Bay in October, implying a shift that favors sellers. MSI indicated a sellers’ market in Marin, Solano, and Sonoma and a buyers’ market in Napa. Note: You can find the charts/graphs for the Local Lowdown at the end of this section. The median single-family home price in Napa declined year over year across markets Single-family home prices are near record highs across most of the North Bay, with the exception of Marin. Persistently low, but rising, inventory relative to the high demand in the area has more than offset the downward price pressure from higher mortgage rates. Prices in the North Bay generally haven’t experienced larger drops due to higher mortgage rates. Year to date, in October, the median single-family home price rose across the North Bay with the exception of Napa. Year over year, however, prices declined across markets. 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 across the North Bay, 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. 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. 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. In October 2024, the number of homes for sale was 11% higher than last year, which was largely caused by the number of homes coming under contract in September, up 17% month over month and 48% year over year. The North Bay housing market is notably responsive to mortgage rates, and as rates fell in September, buyers rushed to the market. Homes under contract increased even further in October, so sales will likely rise again in November. Months of Supply Inventory in October 2024 indicates a sellers’ market in Marin, Solano, and Sonoma and a buyers’ market in Napa 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 in the North Bay markets has trended higher throughout most of 2024. However, in October, MSI fell across markets, implying the market shifted more favorably toward sellers. Currently, single-family home MSI indicates a sellers’ market in Marin, Solano, and Sonoma and a buyers’ market in Napa. Local Lowdown Data
Marin, Napa, Solano, Sonoma North Bay Housing Market Update - October 2024
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 single-family home prices are still near their record highs with the exception of Marin, which peaked at over $2.2 million in 2022. We expect prices to contract in Q4, but we may see a little price bump in October due to higher-than-usual demand. Total inventory fell 15.3% month over month, as homes coming under contract spiked, up 17.2% in September. We expect inventory to decline and the overall market to slow in the fourth quarter. Months of Supply Inventory fell across the North Bay in September, implying a shift that favors sellers. MSI indicated a sellers’ market in Marin and Solano, balanced market in Sonoma, and a buyers’ market in Napa.. Note: You can find the charts/graphs for the Local Lowdown at the end of this section. The median single-family home in Napa reached an all-time high In the North Bay, single-family home prices are near record highs across most of the North Bay with the exception of Marin. Persistently low inventory relative to the high demand in the area has more than offset the downward price pressure from higher mortgage rates. Prices in the North Bay generally haven’t experienced larger drops due to higher mortgage rates. Year to date, in September, the median single-family home price rose across the North Bay with the exception of Napa. Year over year, prices increased most significantly for single-family homes in Marin, up 6%. 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. Inventory, sales, and new listings fell month over month 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. 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. 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. In September 2024, the number of homes for sale was 8% lower than last year, which was directly caused by the number of homes coming under contract in September, up 17% month over month and 48% year over year. The North Bay housing market is notably responsive to mortgage rates, and as rates fell in September, buyers rushed to the market. Months of Supply Inventory in September 2024 indicates a sellers’ market in Marin and Solano, a balanced market in Sonoma, and a buyers’ market in Napa 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 in the North Bay market has trended higher throughout most of 2024. However, in September, MSI fell across markets, implying the market shifted more favorably toward sellers. Currently, single-family home MSI indicates a sellers’ market in Marin and Solano, a balanced market in Sonoma, and a buyers’ market in Napa. Local Lowdown Data Source: Side
Napa Housing Market Update - September 2024
The Big Story Lower Prices and Lower Mortgage Rates Quick Take: Nationally, the monthly cost of financing a median-priced home was 8.3% lower in August 2024 than in June because the median home price declined 2.1% over the past two months, and mortgage rates have dropped. In August, the average 30-year mortgage rate declined for the third month to 6.35%, a 0.87% drop from the 2024 high reached in early May. The Fed is expected to cut rates by at least 0.25% in its September 17-18 meeting. Rate cuts will benefit the current market. Sales rose 1.3% month over month, ending a streak of four consecutive monthly declines, while inventory rose to its highest level since 2020. Because sales have been so sluggish this year, we may see sales increase in the fall, as rates fall and homes become more affordable. 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. Affordability matters. Go figure! Despite low affordability through June 2024, affordability began improving in August 2024. The median U.S. home price reached a record high in June 2024, as did the monthly cost of financing a median-priced home, even though mortgage rates weren’t quite at their highest level this year. In other words, affordability hit a record low in June. Generally, prices tend to peak in June during any given year, even though the market veered away from this seasonality for a few years during the pandemic. It was no surprise, therefore, when prices declined slightly in July and August of this year. Additionally, during July and August, inflation lowered meaningfully, which means rate cuts. The anticipation of rate cuts alone led to lower rates in July and August. Over the past two months, the average 30-year mortgage rate fell 0.51%, which drastically improved affordability. A rough but decent shorthand calculation for mortgage rates is that every 0.10% increase or decrease to mortgage rates equates to roughly a 1% increase or decrease in the monthly mortgage cost. This means that, over the past two months, the monthly payments on homes became approximately 5% cheaper. Sales and inventory generally also decline in the second half of the year. However, this historical trend has broken over the past couple of years. Sales have been historically low since January 2023; so, even though new listings have also been depressed, inventory has grown to its highest level since 2020. At this moment, homebuyers have more choice than they’ve had in years. Higher supply, lower price, and lower interest rates caused sales to increase month over month, albeit only slightly — up 1.3%. Sales may continue to increase, however, because of the improving conditions, and sales levels are so low they almost have nowhere to go but up. The mid-September Fed meeting will likely bring about the first in a series of rate cuts, and the housing market may fare extremely well next year due to the timing of the cuts. The inventory build-up will likely slow for the rest of the year; but, since it’s already grown substantially, that isn’t concerning. We expect to enter 2025 with falling rates, high inventory, and seasonally lower home prices, which should create a perfect storm for a hotter spring market. We realize spring is a bit far; but, until then, we expect the sluggish market we’ve experienced over the past two years to persist, at least in terms of sales. The current market is favoring buyers, so if you’re thinking of buying, we can at least say that you have the most options to choose from. 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 single-family home price fell 2.5% month over month, while condo prices rose 64.9%. Because the condo market is so small in Napa, it is prone to larger median price swings. We expect price contraction for the rest of the year, which is the seasonal norm. Total inventory fell 8.4% month over month, as sales and homes under contract far outpaced new listings. We expect inventory to decline and the overall market to slow as we make our way through the second half of the year. Months of Supply Inventory declined month over month, indicating the market is improving for sellers. Currently, MSI indicates a buyers’ market for both single-family homes and condos. Note: You can find the charts/graphs for the Local Lowdown at the end of this section. Median home prices declined month over month, which is the seasonal norm In Napa, home prices haven’t been largely affected by rising mortgage rates after the initial period of price correction from November 2022 to January 2023. Since January 2023, the median single-family home price has trended significantly higher, up 23%. Year over year, the median price was down 2% for single-family homes and 48% for condos. Single-family home prices peaked last month before falling 3% in August. Napa is unique in the North Bay because it isn’t undersupplied. Homebuyers have more choices, and because Napa is desirable, more supply has led to higher prices as buyers are better able to find the best match. That said, inventory, sales, and price typically peak in the summer, so we expect contraction across those metrics for the rest of the year. 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 begins to slow as we make our way into fall. Sales, inventory, and new listings fell in August In August, inventory and new listings declined, which is normal for this time of year, while home sales remained the same as last month. Compared to this time last year, inventory was at the same level, and sales were down 6% for single-family homes. When we take a longer look back and compare the supply of homes in August 2019 (pre-pandemic) to now, active listings have decreased by 29%. With that in mind, it should be no surprise that sales have declined by 26%. Total inventory has trended lower essentially since 2010, but active listings fell significantly from July 2021 to December 2021, as sales increased dramatically in 2021, before stabilizing from 2022 to the present. Low inventory and new listings, coupled with high mortgage rates, have led to a substantial drop in sales and a generally slower housing market. 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. In 2023, sales and inventory didn’t resemble the typical seasonal peaks and valleys. This year, inventory, sales, and new listings seem to be following an atypical pattern similar to 2023. It’s clear that the Napa housing market will remain slow until spring 2025 at the earliest. Months of Supply Inventory in August 2024 indicated a buyers’ 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 declined significantly from June 2020 to December 2021 before increasing from January 2022 to the present. Currently, MSI indicates that both the single-family home and condo markets favor buyers. Local Lowdown Data
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