JOAN LYNCH October 10, 2024
Conditions that pushed the San Luis Obispo County and larger California housing market into a period of stagnancy through 2024 are finally starting to ease as the end of the year approaches.
Through the first half of 2024, median home prices and sales were restricted by interest rates that reached a record high of nearly 8% around this time last year, but in recent months the market has shown signs of improvement.
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According to a 2025 housing market forecast published by the California Association of Realtors, home sales and median prices are likely to increase next year as interest rates continue to get more favorable for buyers and sellers alike.
San Luis Obispo Realtor Lindsey Harn with Christie’s International Real Estate Sereno said that after a year of modest improvement, she’s hoping the market will continue to open up to more buyers in the coming months.
“We’ve got some builders with new homes that are actually fitting, meaning they haven’t all gotten pre-bought, so there’s some softening in the prices there as well,” Harn said. “I think anytime there’s more options, it gives a buyer the ability to really make an informed decision and shop around.”
INTEREST RATES FINALLY RELENT
As the year has progressed, the high interest rates that tamped down sales and market growth starting in late 2022 have started to soften.
According to mortgage lender Freddie Mac, after hitting a recent peak of 7.79% in October 2023 interest rates remained in the 7% range until May.
Since then, rates have consistently declined, settling closer to 6% as October approached. According to Freddie Mac, rates for 30-year fixed-rate mortgages declined to 6.12% as of Oct. 3.
Harn said in recent weeks, economic indicators of a recession have cooled off, leading to some uncertainty over whether this trend will continue.
“I think the expectation was the Fed would have dropped the rates a little bit sooner and a little bit more significantly,” Harn said. “We got some positive news at the last Fed meeting, and then unfortunately about a week later we had a jobs report that the job situation was much better than expected, and it actually bumped the rates back up.”
According to CAR’s forecast, the overall decline in rates is a sign of better things to come for the housing market. CAR’s report predicted that inflation will continue to moderate over the next 12 months.
“As such, the average 30-year, fixed mortgage interest rate will decline from 6.6% in 2024 to 5.9% in 2025,” the report read. “While next year’s projected average for the 30-year fixed mortgage interest rate will be higher than the levels observed in the few years prior to the pandemic, it will still be lower than the long-run average of nearly 8% in the past 50 years.”
With rates finally softening, the “lock-in effect” of unfavorable new mortgage rates giving potential sellers pause to re-enter the market will have less of a stranglehold over the market.
CAR data shows that the lock-in effect started to be a serious issue for the California market in 2022, when single-family home resales dropped by 22.9% from around 444,500 in 2021 to around 343,000 in 2022.
Single-family home sales continued to fall in 2023, dropping another 24.8% to 257,900 that year. However, in 2024 the market has showed some signs of progress, with CAR projecting a 6.8% overall increase in single-family home sales to reach a projected 275,400 sales by year’s end.
That means 2025 may be a year of increased choice in the market as more inventory becomes available, according to the CAR report.
CAR’s forecast predicted a 10.5% boost in sales in 2025, with 304,400 projected for the coming year.
WILL LOWER INTEREST RATES DO ANYTHING TO IMPROVE AFFORDABILITY?
While CAR is predicting sales improvement for the coming year, that doesn’t mean home prices will be coming down in a meaningful way anytime soon.
CAR predicted median home prices will be in for another record-setting year in 2025.
Since 2018 — when statewide median home prices sat at $569,500 — the market has seen extreme price jumps, reaching a projected statewide median price of $869,500 in 2024, according to the CAR forecast.
Next year, California median prices are expected to climb another 4.6% to $909,400 — a new record high, though not as much of a disruption as the 11.3% or 18.9% price hikes seen in 2020 and 2021, respectively.
Still, with the statewide median price creeping ever closer to $1 million, housing affordability is expected to remain out of the reach of many Californians, according to CAR.
Housing affordability was as high as 32% as recently as 2020 but has fallen precipitously since then, leveling out at 19% in 2022, 17% in 2023, a projected 16% this year and a forecast 16% in 2025, according to CAR.
With inventory staying on the market longer — several weeks in some cases compared to a handful of days around this time last year — buyers have more wiggle room to negotiate a favorable deal than they have had in years, Harn said.
Harn said the market’s gradual improvement through 2024 will generally make homeownership more attainable for more buyers — though competition will naturally rise as rates decline.
“We are seeing buyers having an opportunity to actually come in and maybe offer a little under asking price,” Harn said. “We’re seeing sellers entertain and accept sale contingencies, which we haven’t seen in several years.”
HAS BUYER-BROKER AGREEMENT CHANGE IMPACTED THE MARKET?
As the market starts to get moving again, representatives of home buyers and sellers are dealing with several changes to how they do business.
Earlier this year, the National Association of Realtors reached a $415 million settlement in a class-action lawsuit that changed some of the rules for how agents for buyers and sellers do their business.
As part of the settlement, the association agreed to put new rules in place that prohibit commissions from being advertised on multiple listing services and require more transparency between agent and buyer during the purchase process in the form of a buyer-broker agreement that lays out what the customer will pay for the home along with the broker’s compensation.
Previously, agents for buyers and sellers split what was usually a 5-6% commission that comes out of the proceeds of the sale. The higher the sale price, the higher the commission, which cut into sellers’ net proceeds.
When the change was announced, several local Realtors said they were concerned for the stability of their jobs. A little under two months after the rule change went into effect, results have been mixed.
San Luis Obispo Realtor Christa Lowry — whose team includes 157 local agents — said the change has had little effect on her team or the market since being rolled out Aug. 17.
If anything, customers have appreciated the transparency that the buyer agreement creates at the start of a transaction, while her buyer agents have appreciated working with buyers who are fully committed to finding a home.
“We don’t have buyers calling us and dragging us around to see 50 properties,” Lowry said. “We can’t show the property without them signing an agreement — it’s the same kind of conversation you have with sellers, but now you’re having it with buyers and it’s working out really well.”
However, Lowry said that hasn’t held true for all Central Coast Realtors.
“Buyer’s agents who don’t feel comfortable telling buyers what they are bringing to the table — or buyer’s agents who don’t bring a lot of value — are having a very hard time,” Lowry said. “I’m seeing a lot of them get out of the business or get second jobs, but the people who know how to talk about their value and who go above and beyond for their clients are not having a problem having those conversations.”
Article originally published by The Tribune.