December '24 Market Update

• Elevated mortgage rates dominated the housing market in 2024, and 2025 may look similar if inflation starts to ramp up again. Corporations are already increasing prices before more tariffs kick in despite record profits over the past four years.
• During November 2024, the average 30-year mortgage rate rose 9 bps, adding to the 64 bps increase in October. Since September 2024, the Fed has cut rates by 75 bps, and we expect another 25 bps cut at their December meeting, barring a significant uptick in November inflation data.
• Sales rose 3.4% month over month, up slightly from last month, which saw the lowest level of sales in modern history. At the same time, inventory rose to its highest level since 2020. Higher inventory levels created more opportunity for sales, although we don’t expect sales volume to increase significantly until spring 2025.

Higher mortgage rates and higher prices

The 2024 housing market saw low sales volume, elevated mortgage rates (6.73% on average), and record-high home prices, which peaked in June at $426,900 before declining 6.3% to $400,000 by year-end. High prices, rates, and reduced affordability limited buyer activity, though this seasonal dip aligns with typical trends. Despite higher borrowing costs, the overall economy remained strong, with low unemployment, declining inflation, and robust job growth. However, the incoming Trump administration's proposed tariffs and immigration policies may raise costs for goods, food, and construction while creating labor shortages, especially in agriculture and construction. Looking ahead to 2025, mortgage rates are expected to stabilize around 6.5%, limiting affordability and likely keeping home price growth modest. New construction costs may rise due to higher material prices and labor shortages.

THE LOCAL LOWDOWN

• Median home prices are slightly below peak levels across Silicon Valley. We expected price contraction after peaking in the second quarter, which is the seasonal norm. Prices will likely decline for the next two months.
• Total inventory fell 29.4% month over month, as new listings fell more than sales. We expect inventory to decline and the overall market to slow over the next two months.
• Months of Supply Inventory indicated a sellers’ market for single-family homes and condos with the exception of Santa Cruz, which is more balanced.

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 Silicon Valley market tends to favor sellers, which is reflected in its low MSI. In 2024, Silicon Valley MSI moved higher, particularly in Q2. In October and November, MSI dropped across markets. MSI indicated a sellers’ market for single-family homes and condos with the exception of the Santa Cruz condo market, which is more balanced.

LOCAL LOWDOWN DATA