The national median home price is only 1.6% below the all-time high reached in June 2022, which shows how consistent prices are despite the current interest rates. Home affordability has dropped to its lowest level since the early 1980s when mortgage rates rose above 18%.
In September, the average 30-year mortgage rate reached its highest level since December 2020 at 7.31%. Higher interest rates have decreased affordability, pricing many buyers out of the market, and dampened homebuilding, as construction loans have become too costly for builders.
Home sales have fallen below the initial pandemic dip of May 2020, which further highlights the market slowdown and suggests that the market will remain depressed for at least another six months to a year.
Note: You can find the charts & graphs for the Big Story at the end of the following section.
The average 30-year mortgage rate hit a 23-year high in September, closing the month at 7.31%. The current high mortgage rates are negatively affecting affordability, making it incredibly hard not to compare mortgage rates and prices to those of the past few years — because the comparison is so stark. In 2020 and 2021, 30-year mortgage rates were the lowest in history at an average of 3.11% and 2.96%, respectively. Low rates priced buyers into the market, which drastically grew demand in a market with fairly static short-term supply. Competition among buyers rose sharply, increasing prices at the fastest rate ever. The Case-Shiller 20-City Composite Home Price Index rose 41% from June 2020 to June 2022. Meanwhile, inventory plummeted, creating an even larger supply issue than the already undersupplied U.S. market. Although home prices contracted in the second half of 2022, as the Fed began hiking rates, they bounced back in the first half of 2023 and are now only 1.6% below the all-time high. Once we couple the median price with the average 30-year mortgage rate, we can see the actual monthly cost rather than just the price. Only 27% of homes were purchased with cash in August, a good portion of which were likely bought by homeowners selling their home and using the proceeds to buy another. Most buyers, however, are financing the purchase of their homes in some capacity and are, therefore, affected by the high mortgage rates. To put the change into perspective, the median home financed in August 2023 cost 15% more on a monthly basis than the median home financed in June 2022 — the all-time high price — because rates are 1.8% higher.
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. As always, we will continue to monitor the housing and economic markets to best guide you in buying or selling your home.
Year to date, single-family home prices were up across the North Bay, while condo prices were more mixed. Condo prices in Napa and Solano rose while prices in Marin and Sonoma fell. We expect home prices to remain fairly stable in the fourth quarter.
Active listings in the North Bay rose from August to September, continuing the 9-month upward trend. Rising inventory is only good for the undersupplied North Bay market, which is still 10% below last year’s level.
Months of Supply Inventory rose in September as sales slowed and days on market increased. It’s common for the market to trend toward balance in the fall and winter, when fewer buyers are in the market. Currently, the market still favors sellers.
Note: You can find the charts/graphs for the Local Lowdown at the end of this section.
In the North Bay, the price of housing has remained sticky during a period of rapidly rising mortgage rates. Increasing demand and low, but rising inventory helped drive the rapid home price appreciation that the North Bay experienced in the first half of the year. Single-family home prices contracted in the third quarter but were still up year to date across the North Bay counties. Condo prices were more mixed, with year-to-date price gains in Napa and Solano and declines in Marin and Sonoma. We expect prices to remain fairly stable in the fourth quarter.
Typically, demand begins to decline in the fall and bottoms out in January, so the low supply of homes should be less of an issue. With mortgage rates at a 23-year high, quality listings are going to have the most competition. This isn’t unusual, but potential homebuyers aren’t nearly as willing to pay a premium for a fixer upper as they were in 2020 and 2021.
Single-family home inventory has trended higher into the fall of 2023, which is far from the seasonal norm. Typically, inventory peaks in July or August and declines through December or January. Even though inventory has increased, it’s still historically low, moving higher primarily due to softening demand (fewer sales) caused by higher interest rates, normal seasonality, and an atypical increase in new listings in September. Overall, new listings have been exceptionally low this year. The number of home sales is, in part, a function of the number of active listings and new listings coming to market. Comparing new listings from January through September 2023 to the same time period in 2022, new listings are down 26%, which has directly impacted both inventory and sales. Sales are down 28% year over year.
As demand slows, buyers are gaining slightly more negotiating power and paying less than asking price on average. The average seller received 93% of list in January, which grew to 101% by May. The amount sellers are receiving has started to decline, and by September 2023, the average seller received 97% of list. That being said, inventory will almost certainly remain constrained for the rest of the year, and likely remain low in 2024, which will create price support and at least minor competition among buyers.
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 trending higher in the second and third quarters. MSI remained below three months of supply, indicating the market still favors sellers. The only exceptions are single-family homes in Napa, which shifted to a buyers’ market, and Marin condos, which are closer to a balanced market.
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