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

Quick Take:
- Condo median sale prices continue to trend lower than this time last year.
- Inventory seems to have peaked for the year, as supply is slowly bought up.
- Listings continue to spend much longer on the market when compared on a year-over-year basis.
Note: You can find the charts/graphs for the Local Lowdown at the end of this section.

The fifth straight month of year-over-year price declines in the condo market

For quite a few months, we’ve seen median sale prices trailing where they were last year by a considerable amount. This issue is most pronounced in the condo market, which just recorded its fifth straight month of year-over-year declines in median sale prices, with condos selling for 11.41% less in Alameda County and 8.25% less in Contra Costa County. The single-family market would have had this same record if we hadn’t seen a 1.99% uptick in median sale prices in Contra Costa County last month. However, the single-family home market in Alameda County has seen the same five straight months of declining value.

Inventory is still at a much higher level than last year, despite reaching a local peak

It seems like inventory levels have reached a local peak over the past couple of months, with levels just starting to decrease in the single-family market in June. However, single-family inventory levels are still 20.05% higher on a year-over-year basis, and condo inventory levels are still 13.15% higher. The recent decline in inventory that we just saw can largely be attributed to the number of new listings being added shrinking at a faster rate than demand.

Homes are spending much longer on the market (on a percentage basis)

It’s true, homes are spending quite a bit more time on the market when you look at year-over-year percentage changes. Depending on the market you’re looking at, the average home is spending somewhere between 25% and 35% more time on the market compared to last year.

However, when you take a step back and look at the absolute numbers, homes are still moving relatively quickly. While the condo market truly has slowed down a bit, the average home is only spending 25 days on the market in Contra Costa County and 31 days on the market in Alameda County. When we turn to the single-family home market, listings move even faster, with the average Alameda County home spending just 15 days on the market, and the average Contra Costa County home spending 17 days on the market!

The market maintains its split dynamics

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.

As we have seen for quite some time now, the single-family market in the East Bay continues to be a seller-dominated market, with just 2.3 months of inventory on the market in Alameda County and 2.8 months of inventory on the market in Contra Costa County. However, the condo market is a buyers' market, with 4.7 months of inventory on the market in Alameda County and 3.9 months in Contra Costa County.