Despite elevated mortgage rates over the past couple of months, there are signs of an improving housing market as 2024 ends and 2025 begins, according to a year-end report from the California Association of Realtors.
Among the highlights:
- California home sales have their largest gain since mid-2021
- Home prices in California maintain their moderate growth pace
- Housing sentiment up again as more consumers expect mortgage rates to fall
“Over the past year, we have seen a significant improvement in general consumer sentiment toward the housing market, largely driven by increased optimism that mortgage rates will fall and improved perceptions of both homebuying and home-selling conditions,” said Mark Palim, Fannie Mae Senior Vice President and Chief Economist.
“Notably,” he continued, “this improvement in sentiment continues a trend that began about two and a half years ago following the sizeable run-up in home prices during the pandemic, and it is likely due in part to consumers’ slow-but-steady acclimation to current market conditions. Of course, high home prices and high mortgage rates remain the primary reasons why the vast majority of consumers think it’s a ‘bad time to buy’ — trends that we expect to continue into the new year.”
Inflation is still in line with expectations for now, said the California Association of Realtors report, predicting that the Fed will reduce rates this week. Consumers are also feeling more optimistic about the housing market, and many potential homebuyers could be moving off the sidelines in the coming year, the report posited.
California had its largest yearly increase in existing home sales since June 2021 in November, but despite a double-digit growth rate from their year-ago level, sales of existing single-family homes still remained well below the pre-COVID norm of 400,000 units. The strong year-over-year gain observed last month was largely due to low-base effects, the California Association of Realtors report emphasized, as home sales in November 2023 dropped to their lowest level since late 2007.
At the same time, said the report, the statewide median price in November continued to climb on a year-over-year basis for the 17th consecutive month, but the gain recorded last month was smaller than the six-month moving average observed between May 2024 and October 2024. The deceleration in price growth is an indication that further softening in home prices could be forthcoming in coming months.
With the market slowing for the holiday season, home prices in the next couple of months are expected to moderate further on a month-to-month basis, but we should continue to see low single-digit year-over-year gains through the first quarter of 2025.
Home Purchase Sentiment released by Fannie Mae increased 0.4 points in November and climbed to the highest level since February 2022, as a new record-high share of consumers expected mortgage rates to decline over the next 12 months.
