East Bay May 2024 Market Report

Market Update

East Bay May 2024 Market Report

The Big Story

 

Rates Are Up, and Sales Are Down
Quick Take:
  • Prices have risen 6.8% over the past three months, landing only 2.2% below the all-time high reached in June 2022. Additionally, the median list price per square foot hit an all-time high in April 2024.
  • Mortgage rates rose nearly half a percentage point in April due to changing Fed rate cut expectations, hitting the highest level yet in 2024. The Fed has expressed that inflation is taking longer to settle at 2% than originally expected, so higher rates will likely be here for most—if not all—of 2024.
  • Sales fell 4.3% month over month, and inventory rose 4.7%. Rising prices and interest rates priced buyers out of the market, reducing sales.

Note: The charts and graphs for the Big Story are at the end of the following section.

 

Another market slowdown

The average 30-year mortgage rate started the year at 6.62%, marking the third consecutive year of elevated rates. Expectations for 2024 have shifted significantly since January. Initially, with inflation trending lower, economists anticipated rate cuts by March. However, inflation plateaued around 3% and failed to reach the 2% target, causing the Federal Reserve to delay cutting the federal funds rate, which indirectly but significantly influences credit markets. In fact, inflation has increased year over year over the past two months, pushing the timeline for rate cuts further out.

During its May meeting, the Federal Reserve unanimously decided to hold policy rates steady for the sixth consecutive time, keeping the federal funds target rate at 5.25% to 5.50%. Fed Chair Jerome Powell emphasized that future rate hikes are unlikely, and rates are expected to remain steady, with less clarity on potential cuts. The Fed's dual mandate aims for stable prices (around 2% inflation) and low unemployment. With a strong jobs market, the focus remains on inflation.

This shift has led to higher mortgage rates, which have risen 0.6% since the start of the year, with two-thirds of that increase occurring in April. Rising rates, especially rapid increases, tend to slow the housing market. As of May, the average 30-year mortgage rate hit 7.22%, the highest level in 2024 and close to last year's 23-year high of 7.79%. In April, rising prices and rates decreased affordability significantly. The 0.38 percentage point increase in mortgage rates in April alone dramatically raised monthly home costs. Combined with median price increases, the monthly cost rose 7% in April and 13% from January to April.

Low rates tend to inflate prices and boost sales, while high rates slow sales, as seen over the past four years. Inventory is a key factor driving this disconnect. Despite growing inventory, demand remains high relative to supply. However, rising prices make buyers more selective, leading to an overall market slowdown. This spring showed signs of normalcy with rising sales and inventory, but recent rate increases have led to a rare drop in spring sales. Even though elevated mortgage rates feel more normal now, rates above 7% naturally cause hesitation among potential buyers and sellers.

Different regions and individual homes can vary from national trends, so we've included a Local Lowdown below for in-depth coverage of your area. As always, we will continue to monitor housing and economic markets to guide you in buying or selling your home.

 

Big Story Data

The Local Lowdown

Quick Take:
  • Median home prices are slightly below peak levels across the East Bay. As more new listings come to market, we expect prices to continue rising and to reach new highs in the summer months.
  • Active listings, sales, and new listings rose in the East Bay month over month, which is beneficial for the housing market. After the slowdown experienced over the past year and a half, we expect inventory to increase in the first half of the year and possibly return to a more normal market.
  • Months of Supply Inventory declined sharply from January to April, indicating the market is heating up. MSI indicates a sellers’ market in the East Bay.

Note: You can find the charts/graphs for the Local Lowdown at the end of this section.

 

Single-family home inventory, sales, and new listings increased month over month

Since the beginning of 2023, single-family home inventory has followed typical seasonal trends but at significantly lower levels. This low inventory, combined with fewer new listings, has considerably slowed the market. Normally, inventory peaks in July or August and declines through December or January, but the lack of new listings has hindered any substantial inventory growth. In contrast, last year saw new listings and sales peak in May, with inventory peaking in October.

In 2023, new listings were exceptionally low, and the modest inventory growth we saw was driven by weakening demand. By December 2023, both inventory and sales had dropped, but the influx of new listings in 2024 has led to a significant increase in sales this year. The market is already showing signs of improvement, and we anticipate more new listings and sales in Q2 2024.

The number of new listings coming to market is a key predictor of sales at current inventory levels. New listings have risen 25% month over month, with sales increasing by 26%. Year over year, inventory is up 24%, and sales have risen by 17%. While demand remains high in the East Bay, additional supply is needed for a healthier market.

 

Months of Supply Inventory fell in April 2024, indicating a sellers’ market

Months of Supply Inventory (MSI) measures the balance between supply and demand by calculating how many months it would take to sell all current homes on the market at the current sales rate. In California, the long-term average MSI is about three months, indicating a balanced market. An MSI below three signifies more buyers than sellers (a sellers' market), while an MSI above three indicates more sellers than buyers (a buyers' market).

The East Bay market typically favors sellers, reflected in its consistently low MSI. In the second half of 2023, however, MSI for condos rose above three months, suggesting a shift towards a more balanced or buyers' market. From January to April 2024, the East Bay MSI dropped significantly, once again indicating a market that favors sellers.

 

Local Lowdown Data

 

 


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