Home Buyer Opportunities Are Opening Up

The housing market in the first half of 2024 has seen rising inventory and lower demand, creating some interesting opportunities for home buyers. According to the National Association of REALTORS® (NAR), pending home sales fell by 2.1% in May and are down nearly 7% from last year. NAR’s Chief Economist, Lawrence Yun, notes that the market is at an "interesting point" with these shifts.

Inventory on the Rise

In Santa Cruz and Monterey County, housing inventory at the end of June was up by 14.5% compared to a year ago, as analyzed in data from MLS Listings. This increase in supply, coupled with lower demand, suggests we might see some easing in home price appreciation in the coming months. Despite this, the median existing-home sales price in June surged to a record high of $1,413,000 in Santa Cruz County.

“Supply and demand movements suggest easing home price appreciation in upcoming months,” Yun says. The increased inventory offers buyers more choices, a stark contrast to the slim pickings of previous years. For sellers, it means that pricing competitively is more critical than ever to attract buyers in a market that's becoming less frenzied.

Steady Home Sales and Declining Mortgage Rates

Local home sales have remained steady despite rising prices and home insurance costs. One positive note for buyers has been the gradual decline in mortgage interest rates. Starting in early May, Freddie Mac reported a consistent drop in rates over seven of the last eight weeks. Although rates are expected to stay above 6% through 2024 and 2025, this trend offers a bit of breathing room for potential buyers.

Historically, lower mortgage rates have been a significant driver of home sales. As rates decline, more buyers can afford to enter the market, which could lead to increased transaction volumes in the second half of the year. For instance, a 1% drop in mortgage rates can increase a buyer's purchasing power by about 10%.

Impact of High Mortgage Rates

Persistent high mortgage rates have kept many prospective buyers on the sidelines. Carl Harris, chairman of the National Association of Home Builders, states that there is significant unmet demand and expects mortgage rates to moderate in the coming months, which could attract more buyers into the market.

Despite these declines, compared to the pandemic years, many buyers remain cautious. High mortgage rates have increased monthly payments significantly, making affordability a key concern. However, Harris points out that “significant unmet demand exists,” indicating that as soon as rates drop to more manageable levels, we could see a surge in buyer activity.

Market Predictions for the Second Half of 2024

Economists predict a robust housing market for the latter half of the year and into 2025. Yun anticipates moderately lower mortgage rates, higher home sales, and stabilizing home prices. Despite the challenges faced in the first half, the outlook remains positive for both home prices and transaction volumes.

The first half of the year did not meet expectations regarding home sales but exceeded expectations related to home prices. With lower mortgage rates, more buyers are expected to re-enter the market, boosting sales figures and possibly driving up prices again, though at a slower pace.

Homes Selling Below List Price

For the first time since early 2020, the typical U.S. home sold slightly below its list price last month. High housing costs and temperatures have deterred some buyers, leading to homes in Santa Cruz and Monterey County selling for 1.3% less than their asking price in June. This trend could signal a slowdown in home-price growth in the coming months.

The typical home sold for exactly its list price one year ago and roughly 2% above its list price two years ago. This change indicates a cooling market, which could be beneficial for buyers looking for a deal. The likelihood of homes selling below asking price is rising because there’s more supply than demand, at least for certain types of homes in certain parts of these two counties. New listings are up 14.5% year-over-year.

Strategic Advice for Buyers and Sellers

Given the current market dynamics, both buyers and sellers need to adjust their expectations. Sellers should avoid overpricing their homes, while buyers should be prepared to negotiate, particularly if a home has been on the market for several weeks without significant activity.

Homes in the middle of the spectrum—those that are decent but not updated—tend to sit on the market the longest. Sellers might benefit from making cosmetic repairs before listing. Buyers, on the other hand, should be realistic about what they can negotiate and look for opportunities in less competitive listings.

NAR Settlement and Its Implications

This welcome news for buyers comes just before the NAR settlement goes into effect in August 2024 which could result in buyers paying their agent's commission out of pocket in addition to their downpayment and closing costs at the close of escrow in some instances. 

The settlement, which addresses allegations of anti-competitive practices, requires significant changes in how real estate commissions are disclosed and negotiated. Read more of the details on a previous blog post here. 

Making the Most of the Market Shift

Overall, the current shifts in the market present a promising outlook for both buyers and sellers. For buyers, increased inventory and falling mortgage rates offer more options and better negotiating power. Sellers can still benefit from the high prices but must be strategic about pricing and presenting their homes.

As we move into the latter half of 2024, staying informed and flexible will be key to making the most of these market conditions. Whether you’re looking to buy or sell, understanding the market dynamics and upcoming changes can help you make the best decisions.