The Big Story

Quick Take:

Affordability remains an issue nationwide, as the median monthly P&I payment ticked up by 10.15% on a year-over-year basis at the end of April.
Mortgage rates have continued to hold the mid-six percent range that we’ve seen for over six months.
Inventories continue to climb throughout the country, while home sales start to slow down.
The recent global economic and geopolitical instability that we’ve seen likely won’t help the market, as uncertainty may lead people to stay where they are.

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..

The housing affordability issue continues to grow

As we all know, housing affordability has been a problem on a national scale for quite a few years at this point. At this point in time, many find it hard to believe that the housing market will return to pre-pandemic levels in terms of affordability at any point in the near future. Unfortunately, things have not gotten much better, as the median monthly P&I payment increased by 10.15% on a year-over-year basis, to $2,182 in the month of April. This jump in P&I payment represents a drastic month-over-month jump of 3.46%. This jump is actually quite perplexing, as median home sale prices have increased by 1.34% on a year-over-year basis, while mortgage rates have actually come down.

Mortgage rates remain stagnant in the mid-six percent range

For the past few months, mortgage rates have remained fairly stable, in the mid-six percent range. Although the stability that we’ve seen is a good thing, the levels they’ve stabilized at are quite a bit higher than recent historical averages. This, of course, is one of the leading causes of the affordability issues that we’ve seen recently.

It is worth noting, though, that we might see some discounted rates toward the back half of the year. Although the Fed has not touched the federal funds rate in nearly a year, the Fed chairman has signaled that one to two rate cuts are expected by the end of the year, so long as there aren’t any further spikes in inflation.

Inventories are building at an incredibly rapid rate

What we have been seeing in terms of inventories in California has been echoed on a nationwide scale. Fewer homes are being sold, with 1.95% fewer existing home sales when compared to this time last year. At the same time, 9.95% more new listings have hit the market on a year-over-year basis. This has led overall inventory to increase by a whopping 20.31% on a year-over-year basis.

As inventories are piling up, negotiating power will slowly shift from the sellers to the buyers, as buyers have more opportunities, and don’t need to move nearly as quickly as they had to just a year earlier.

Global economic and geopolitical instability are making both buyers and sellers more cautious

In any market, but especially the real estate market, instability is incredibly detrimental. Given the recent rise in uncertainty around tariffs and employment, coupled with continued instability in Europe and the Middle East, both buyers and sellers have become much more cautious. Inventories are growing throughout California and the broader United States. However, for those who have the capital and a long time horizon, times like these can represent excellent buying opportunities, as good deals are easier to come by.

However, it’s important to note that this is just what we have been seeing at the national level. California markets have largely remained resilient, which we’ll delve into more in the local lowdown section below.

Big Story Data

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The Local Lowdown

The condo market continues to be incredibly volatile, while the single-family home market has remained relatively stable.

In June, we saw a sharp decline in the amount of inventory on the market, as fewer new listings were added.
Despite the drastic drawdown in inventory, the average listing is still sitting on the market for longer than it was last year.

Continued stability in the single-family home market

In June, the North Bay saw another month of relative stability, with single-family home median sale prices increasing by 2.92% on a year-over-year basis in Sonoma County and 5.60% in Napa County, and decreasing by 5.23% in Solano County and 5.35% in Marin County. However, when you look at the graph of median sale prices over time, you can see that the most recent data points are well within the “band” of pricing that homes have sold for over the past few years. Median sale prices for condos have remained volatile in Marin and Napa Counties, while Sonoma and Solano County condo median sale prices have stayed within their respective bands.

Inventories declined by nearly 20% from May to June

Over the course of the past month, we’ve witnessed one of the sharpest declines in inventory in recent history, with single-family home inventory falling by 19.34% on a month-over-month (7.09% on a year-over-year basis) and condo inventory falling by 19.76% (0.29% year-over-year). This was driven in part by the fact that there were considerably fewer new listings added in June, as we recorded the slowest June that we’ve seen in recent years. The number of sold listings was roughly in line with what we saw last year, but there was certainly some hesitancy in putting homes up for sale last month. This unusual phenomenon will be worth tracking over the coming months.

Although inventories dropped off, listings are spending 20%+ more time on the market

While you might expect the number of days a listing spends on the market to drop off drastically when inventories plummet the way they did last month, they didn’t. In reality, the median single-family home listing spent 21.43% longer on the market in Sonoma County, 25% longer in Marin County, 30.77% longer in Solano County, and 16.67% longer in Napa County on a year-over-year basis. This is more than likely due to the fact that time on market is a lagging indicator, given that it can take several weeks to close a real estate transaction. However, it will be important to pay attention to this metric moving forward over the next couple of months.

Marin and Solano Counties are close to balanced, while Sonoma and Napa Counties are buyer’s markets

When determining whether a market is a buyers’ market or a sellers’ market, we look to the Months of Supply Inventory (MSI) metric. The state of California has historically averaged around three months of MSI, so any area with at or around three months of MSI is considered a balanced market. Any market that has lower than three months of MSI is considered a seller’s market, whereas markets with more than three months of MSI are considered buyers’ markets.

When we look at the single-family market, Marina and Solano Counties have swung back to neutral this month, with 2.8 and 2.9 months of inventory on the market, respectively. Meanwhile, Sonoma and Napa Counties are still buyer's markets with 3.7 and 7 months of inventory on the market, respectively. However, when we turn to the condo market, all areas are buyers' markets, with Sonoma and Marin Counties having 3.8 months of inventory on the market, Solano County having 3.7 months of inventory on the market, and Napa County having a massive 8.1 months of inventory!