As we approach the end of 2024 and the beginning of 2025, the residential real estate market is poised for significant changes. Several factors are shaping the outlook, including economic conditions, interest rates, and housing inventory. Here's what homebuyers and sellers can expect in the coming months.

Economic Recovery is Region and industry-specific

The U.S. economy is showing clear signs of recovery, which is positively impacting the housing market. A significant factor in this recovery has been strong job growth, leading to increased demand for housing as more people secure stable employment. According to the Bureau of Labor Statistics, job additions have now surpassed pre-pandemic levels, which is likely to sustain housing demand through 2025.

However, this positive outlook is not evenly distributed across all regions. According to a report by the Economic Innovation Group (EIG), many communities across the country, especially in rural and economically disadvantaged areas, have not experienced the same level of recovery. These "left behind places" are struggling with stagnant or declining populations, lack of economic opportunity, and limited access to resources. The disparity between thriving urban centers and struggling rural areas highlights the uneven nature of economic recovery in the U.S.

For the housing market, this means that while demand and growth are strong in many regions, particularly those with robust job markets, other areas may continue to face challenges. The recovery in these "left behind" areas may lag, affecting local real estate markets and potentially leading to continued population decline as residents move to more prosperous regions in search of better opportunities.

In summary, while the overall U.S. housing market is buoyed by economic recovery and job growth, it’s important to recognize the uneven distribution of these benefits across the country. In regions where recovery is slower, the housing market may not see the same level of demand or price appreciation, reflecting the broader economic challenges facing these communities.

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Cooling Inflation and Mortgage Rates

The real estate market is currently influenced by a significant trend: the cooling of inflation. As inflation moderates, mortgage rates are projected to decline, which is promising for potential homebuyers who have been hesitant due to high financing costs. According to predictions, mortgage rates that peaked in 2023 are likely to decrease, making homeownership more accessible and affordable.

Supporting this outlook, the latest data from Freddie Mac’s Primary Mortgage Market Survey indicates that mortgage rates have shown signs of easing after reaching their highest levels in recent years. This decline in rates is expected to continue as inflation subsides, creating a more favorable environment for buyers. The combination of stabilizing home prices and lowering interest rates could lead to increased home sales and provide some relief to those previously priced out of the market.

This trend is particularly important for buyers who are looking to take advantage of the improved affordability while also benefiting from the broader stabilization in the housing market. As more homes become available and new construction ramps up, buyers will likely find more options and face less competition, further enhancing their purchasing power.

In summary, the real estate market is entering a period of moderation, where cooling inflation and declining mortgage rates are poised to make homeownership more attainable for many. Buyers should stay informed and consider these evolving conditions as they plan their real estate investments. (link).

Housing Prices and Market Stabilization

As of August 7th, 2024, Forbes reported that U.S. home prices saw a 5.9% annual gain in May 2024, following a 6.4% gain in April 2024. Despite high interest rates making some buyers hesitant about making large down payments, the market is showing signs of stabilization. While home prices aren't expected to drop significantly, the pace of price increases is slowing, offering some relief to buyers. This stabilization is largely due to an increase in housing inventory, as more homes become available and new construction projects continue. The higher supply of homes means more competition among sellers, giving buyers more options and potentially easing the intensity of bidding wars. However, this doesn’t necessarily mean that demand for high-quality properties is diminishing. Buyers are becoming more discerning, so sellers who invest in properly preparing their homes for sale are more likely to attract buyers quickly, rather than relying on a simple “list it and leave it” approach.

Increased Housing Starts

Increase in Building Permits and Housing Starts

The data from the U.S. Census Bureau and HUD indicates a rise in building permits and housing starts across the U.S., including California. June 2024 saw a seasonally adjusted annual rate of 1,446,000 building permits and 1,353,000 housing starts. Although there was a slight decrease compared to the previous year, the overall trend points to a stable level of new residential construction activity.

Housing Completions are Surging

Housing completions have also increased significantly, with June 2024 reporting a 10.1% rise from May 2024, marking an annual rate of 1,710,000 completions. This surge in completions suggests that more homes are becoming available to meet demand, which could influence pricing and availability in California’s housing market.

Regional Disparities and Slow Recovery in Certain Areas

According to the Legislative Analyst's Office (LAO) in California, certain regions within the state are experiencing slower recovery, particularly in rural and economically disadvantaged areas. These "left-behind places" face challenges such as stagnant population growth and limited economic opportunities, which could slow housing market recovery in those areas.

Implications

The increase in housing completions and the steady issuance of building permits suggest that the housing supply is growing, which could lead to a stabilization of home prices in California. This may provide relief to buyers who have been facing high competition and rising prices in the market.

What This Means for Buyers and Sellers

For buyers, the end of 2024 and the beginning of 2025 may present a more favorable environment to enter the market. With lower mortgage rates and more housing options, it could be an ideal time to purchase a home. However, it’s still essential for buyers to be financially prepared and to act quickly in a still-competitive market.

Sellers, on the other hand, may face increased competition, not just from other sellers but also from new home builders. Pricing strategies will be crucial to attract buyers in a market that is becoming more balanced between supply and demand.

If you are looking to sell or buy a home or property within Northern California, please let me help you guide you through the real estate and property market. Don’t waste time on listing sites, or trust “new agents”, allow my 35+ years in real estate to help you buy or sell a home faster and at better pricing than anyone. Thank you!