The Big Story
Median home price hits record high for the second month
Quick Take:
-
Nationally, home prices hit an all-time high in June 2024, and we estimate that prices may have bucked seasonal trends and climbed slightly higher in July.*
-
In July, the average 30-year mortgage rate declined for the third month, falling to 6.78%, a 0.44% drop from the 2024 high reached in early May. The Fed is poised to start cutting rates in September, which tends to be around the time the housing market really slows before the holidays.
-
Sales fell 5.4% month over month and year over year, while inventory rose to its highest level since 2020. The combination of rising prices and high interest rates has kept sales historically low. Although the market is shifting in buyers’ favor, we still expect sales to decline for the rest of the year.
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.
Rate cuts expected during slowest months in the housing market
In June, prices rose for the fifth month in a row, reaching all-time highs. Typically, home prices begin to fall in July, but this year may be different. Currently, we estimate data to show that the national median home price rose very slightly in July. We are confident, at least, that prices have not fallen 5% from June to July, which means that July was the 13th consecutive month of year-over-year price growth. Despite the seasonal price dip, which is surely coming in the second half of the year, year-over-year price growth will almost certainly continue for months to come.
So why won’t prices see a major shift downward in the second half of the year? Seasonal trends already dictate that prices will decline starting around now. Combine that with high mortgage rates, slowing sales, and the highest inventory in four years, and it seems like we have the perfect recipe for prices to fall significantly. While home prices tend to increase over time, the pandemic buying boom set the stage for prices to rise more quickly than expected, and to stay high. In a funny way, higher interest rates have been incentivizing higher prices due to the cost of selling and buying at the same time. From June 2019 to March 2022, the average 30-year mortgage rate was less than 4%, and the averages for all of 2020 and 2021 were 3.11% and 2.95%, respectively. All that to say, those buyers who purchased their homes through financing, as most buyers do, in 2020 or 2021, and who plan to buy their next homes through financing at a much higher rate — they need to sell their current homes for much higher to combat the cost of financing new ones.
To further the point, the cost of financing the median home in June 2024 has increased 83% compared to June 2021, even though the sticker price of the median home is only up 16%. However, let’s say you bought the median home in June 2021 with 20% down, and then in June 2024, both sold your old median price home and bought the June 2024 median price home, your mortgage would only go up 55% rather than 83% because of the $60,000 price appreciation, which would bring you to ~30% equity in the new home. To be clear, 55% is still a lot, but it’s better than 83%.
Overall, inventory growth is great news for the undersupplied U.S. housing market. According to data from realtor.com, inventory reached its highest level since June 2020. 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 easily continue to grow in the second half of the year. Fed rate cuts will come right when the market really starts to slow down, so they probably won’t drive the market into a buying frenzy in the fourth quarter.
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.
Big Story Data
The Local Lowdown
Quick Take:
-
The median single-family home and condo prices fell 2.1% and 4.5%, respectively, but prices are still near their record highs. We expected price contraction after peaking in the second quarter, which is the seasonal norm. Prices will likely decline for the rest of the year.
-
Total sales in Orange County rose 11.4% month over month, highlighting the high demand. Homes coming under contract rose significantly as well, up 3.3%, indicating that sales may increase again in August.
-
Months of Supply Inventory fell below three months of supply in February, and remained near two months of supply in July, indicating the market favors sellers.
Note: You can find the charts/graphs for the Local Lowdown at the end of this section.
The median single-family home and condo prices fell but are still near all-time highs
In Orange County, home prices hit record highs in April 2024 for single-family homes, and in June 2024 for condos. Persistently low inventory and high demand have more than offset the downward price pressure from higher mortgage rates. Prices in Southern California generally haven’t experienced larger drops due to higher mortgage rates, and as mentioned in the Big Story, higher mortgage rates are contributing to prices staying high. July saw the 13th consecutive month of year-over-year price growth for both single-family homes and condos. Prices typically peak in the summer months, and we don’t expect new all-time highs this year. However, we do expect some minor price contraction in the coming months. Additionally, single-family home 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 near 6%. Now that rates are declining again, sales could get a little boost, but the housing market typically begins to slow this time of year.
Sales increased for single-family homes and condos in July
In July, sales rose 10% for single-family homes and 14% for condos month over month. Inventory fell slightly for single-family homes and rose slightly for condos. For single-family homes, inventory declined due to a month-over-month increase in sales and a drop in new listings, whereas condo sales rose, but new listings remained the same month over month.
Total inventory trended down from August 2022 to March 2023, as far fewer listings came to the market, before stabilizing from March 2023 to the present at a depressed level — still 20% lower than two years ago. Low inventory and new listings, coupled with high mortgage rates, have led to a substantial drop in sales and a generally slower housing market. Typically, inventory begins to increase in January or February, peaking in July or August before declining once again from the summer months to the winter. In 2023, inventory patterns didn’t resemble the typical seasonal inventory peaks and valleys. It’s looking like 2024 inventory, sales, and new listings will resemble historically seasonal patterns, but at a significantly depressed level. Now that we’re more than halfway through the year, it’s clear that supply will remain tight until spring 2025 at the earliest.
Months of Supply Inventory fell in July 2024 and continued to indicate 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). MSI has been below three months for most of the past 12 months. Since January 2024, MSI has declined significantly. Currently, MSI implies a sellers’ market for both single-family homes and condos.
