In June, prices rose for the fifth month in a row, peaking at an all-time high in June 2024. This also marks the 12th consecutive month of year-over-year price growth. According to typical seasonality, the median price peaks in June, so we expect prices to decline starting in July. Over time, prices generally move much higher in the first half of the year than they decline in the second half; you can think of it as two steps forward and one step back, year after year. Last year, for example, prices rose 13.7% from January 2023 to June 2023, then fell 7.7% from June 2024 to January 2024, which was still a year-over-year gain of 4.9%. This year will likely look similar, although we don’t think that prices will decline as much in the second half of 2024 as they did in 2023, especially if the Fed cuts rates in the fall. Even a minor rate cut, like the expected 0.25%, could significantly affect mortgage rates, as it would signal the beginning of more and more cuts.
For the moment though, we are starting summer with a combination of elevated mortgage rates and record high prices, which have brought affordability to an all-time low. Low affordability has resulted in fewer sales and growing inventory. Demand is still high relative to supply, even though inventory is building. We know that demand is still high because buyers are still buying at peak prices. From a historical context, we should’ve expected this to happen. We took a look at data from the 1980s to see how much home prices appreciated during a decade-long period of the highest mortgage rates in history. From January 1, 1980, to January 1, 1990, the 30-year mortgage rate ranged from 9.03% to 18.63%, with an average rate of 12.71%. Although home prices didn’t increase dramatically like they have in the recent past, inflation-adjusted home prices still increased about 8% during that decade. Today, with the strong U.S. economy, it was never very likely for home prices to stagnate or decline due to higher mortgage rates. However, high rates have slowed sales volume considerably, which has caused inventory to grow.
Overall, inventory growth is great news for the undersupplied U.S. housing market. According to data from the National Association of REALTORS® (NAR), inventory reached its highest level since August 2022. The market is still broadly undersupplied, but the increasing inventory level should cause rising home prices to slow. In the pre-pandemic seasonal trends, sales, new listings, inventory, and price would roughly all rise in the first half of the year and decline in the second half of the year. Sales and new listings have been far lower than usual since mortgage rates started climbing, which is to be expected. Because we don’t anticipate sales to pick up until the spring of 2025, inventory could continue to grow in the second half of the year.
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. As always, we will continue to monitor the housing and economic markets to best guide you in buying or selling your home.
In Silicon Valley, low inventory and high demand have more than offset the downward price pressure from higher mortgage rates. Home prices haven’t been largely affected by rising mortgage rates after the initial period of price correction from May 2022 to January 2023. In 2023, prices trended horizontally, but in 2024, prices have begun to rise meaningfully. In May, the median single-family home price reached record highs in San Mateo and Santa Clara. Although they fell from the May peak in June, Santa Cruz prices rose to an all-time high. Condo prices rose month over month across Silicon Valley. We expect prices in Silicon Valley to remain at or near peak until the mid-summer. Additionally, inventory is low enough that it will create price support as supply declines in the second half of the year.
High mortgage rates soften both supply and demand, but home buyers and sellers seemed to tolerate rates above 6%. Now that rates are near 7% again, sales are slowing during the time of the year when sales tend to be at their highest. This phenomenon isn’t great for the market, but it isn’t terrible, either, as it may allow inventory to build in a massively undersupplied market.
Inventory, sales, and new listings fell in June
Since the start of 2023, single-family home inventory has followed fairly typical seasonal trends, but at significantly depressed levels. Low inventory and fewer new listings have slowed the market considerably. Typically, inventory peaks in July or August and declines through December or January, but the lack of new listings prevented meaningful inventory growth. Last year, new listings and sales peaked in May, while inventory peaked in September. New listings have been exceptionally low, so the little inventory growth in 2023 was driven by softening demand. In December 2023, inventory and sales dropped, but more new listings have come to the market in 2024, which has driven the significant increase in sales so far this year. The market looks far healthier than last year, and we expect the market to slow in the coming months — the seasonal norm.
With the current inventory levels, the number of new listings coming to market is a significant predictor of sales. New listings fell 19% month over month, and sales followed suit, declining 11%. Year over year, inventory is up 20%.
Months of Supply Inventory rose in June but still indicated a sellers’ market
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. MSI trended higher in the second half of 2023, but never climbed above three months of supply. In Q1 2024, however, the Silicon Valley MSI fell significantly before rising significantly in Q2. Still, the single-family home and condo markets favor sellers, but the condo market is trending toward balance.
