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July Market Update 2024

Market Update

July Market Update 2024

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. 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.
 
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.
 

The Local Lowdown

 
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 June, the median single-family home price fell 2% in Alameda and 3% in Contra Costa. Year over year, prices were up 4% in Alameda and down 2% in Contra Costa. We expect prices in the East Bay to remain slightly below peak this year, although new highs are possible in July 2024. Additionally, inventory is low enough that it will create price support as supply declines in the second half of the year.
 
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 looks far healthier than last year, and we expect the market to slow in the coming months — the seasonal norm.
 
With the current inventory levels, the number of new listings coming to market is a significant predictor of sales. New listings fell 14% month over month, and sales followed suit, declining 12%. Year over year, inventory is up 33%.
 
As always, Arrive Real Estate Group remains committed to helping our clients achieve their current and future real estate goals. Our team of experienced professionals are happy to discuss the information we’ve shared in this newsletter. We welcome you to contact us with any questions about the current market or to request an evaluation of your home.

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