The Fed telegraphed that rate hikes are ending, and financial markets expect rate cuts in 2024, which will meaningfully reduce the cost of financing and increase home sales.
High mortgage rates continue to drive low home sales, which are down 15% year over year. However, low sales have caused inventory to build, which will benefit the 2024 market as demand increases.
Home prices are declining slightly, which is normal this time of year, but mortgage rates are keeping the monthly cost of financing a home at or near record highs.
Note: You can find the charts & graphs for the Big Story at the end of the following section.
Even though Fed Chair Jerome Powell remarked that it’s too soon to definitively conclude that rate hikes are finished, the financial markets have, in fact, decided they’re finished. As of December 4, 2023, interest-rate futures traders (the people who make a lot of money being right about where rates will go) expect the Fed to cut the federal funds rate, which currently falls between 5.25% and 5.50%, by 1.25%.
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. In general, higher-priced regions (the West and Northeast) have been hit harder by mortgage rate hikes than less expensive markets (the South and Midwest) because of the absolute dollar cost of the rate hikes and limited ability to build new homes. The National Association of Realtors’ Chief Economist Lawrence Yun recently remarked that multiple offers are still occurring, especially on starter and mid-priced homes, even as price concessions are happening in the upper end of the market. As always, we will continue to monitor the housing and economic markets to best guide you in buying or selling your home.
The median single-family home prices declined across the North Bay in November, which is normal this time of year. Year over year, median single-family home prices were mixed, with Marin and Solano prices increasing since last year, while Napa and Sonoma prices declined.
Active listings, sales, and new listings fell month over month for single-family homes. However, condo inventory rose slightly in November. Rising inventory is definitely good for the housing market, which is likely to experience much higher demand in 2024.
Months of Supply Inventory indicates the market is shifting toward balance, but it is still a sellers’ market in most of the North Bay. It’s common for MSI to trend higher in the fall and winter, when fewer buyers are in the market and sales slow.
Note: You can find the charts/graphs for the Local Lowdown at the end of this section.
In the North Bay, home prices haven’t been largely affected by rising mortgage rates after the initial period of price correction from April 2022 to January 2023. Month over month, in November, the median single-family home price declined 7% in Marin, 26% in Napa, and 7% in Solano and Sonoma. However, year over year, Marin and Solano prices are up 6% and 2%, respectively, while prices in Napa are down 25% and down 5% in Sonoma. We expect prices to remain fairly stable in the winter months, but as interest rates decline and more sellers come to the market, prices will almost certainly rise in the first half of 2024. More homes must come to the market in the spring and summer to get anything close to a healthy market.
High mortgage rates soften both supply and demand, so ideally, as rates fall, far more sellers will come to the market. Rising demand can only do so much for the market if there isn’t supply to meet it. Unlike 2023, 2024 inventory has a much better chance of following more typical seasonal patterns.
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 North Bay market tends to favor sellers, which is reflected in its low MSI. MSI fell sharply in the first quarter this year before gently trending higher starting in May. In November, MSI remained below three months of supply, indicating the market still favors sellers. The only exceptions are single-family homes and condos in Napa and condos in Solano, which shifted into a buyers’ market.
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