The question is, how does today’s change in real estate market impact any of your real estate plans you’re considering 2025?
Today, I’m going to specifically talk about three areas. The impact of housing affordability, or more like the lack of affordability. Secondly, current inventory trends. And finally, we’re going to talk a little bit about interest rates and how they impact the other two.
Every year, the California Association of Realtors puts out their real estate market outlook and trends. Let’s see what they’re predicting for 2025 and see how it might impact you.
This is a chart that California Association Realtors provided us with a market outlook and forecast for 2025.
The information we’ve got here, we got by year, and we got the number of sales, median price, affordability, and interest rates. I took that same information, put it in a graph here to make it a little bit more readable.
Let’s let explain how affordability is impacting buyers and sellers. Let’s first define it. Housing affordability is a percentage of households in California that can afford the median price of homes. Let’s talk a little bit about the trends in affordability. Back in 2020, 32% of the Californians could afford a $680,000 house. That’s a median price house. We can see that it drops drastically all the way down to 2024 where less than half the people in 2020 can afford the median price home, which is closer to $870,000. This drop in affordability is what’s making it tougher for buyers.
And let’s look at some of the factors that are driving that. The first factor we can see is that the average price range, the median price range of home is continuing to go up. That is just making owning a home less attainable for buyers. Some of the other factors that are major factors going in there is the interest rates. I did a little chart here on interest rates to show how the impact of the spike in interest rates from 2021, which is the low 3%, all the way to 2022, where it was at 3.25% in the beginning of the year, and it spiked up over 7%.
For instance, in the beginning of 2022, rates were about 3.25%. On an $800,000 loan, your payment would have been around $3,481. That’s your principal and interest, not tax and insurance, just your loan payment. As rates went up, and when they got up to 6%, your payment jumped $1,315 up to $4,796. The question is, how much buying power does that represent? What I did was I plugged the $1,305 or $1,315 in a calculator at the earlier interest rate. You can borrow $300,000 for $1,300 a month.
In other words, that’s how much buying power the buyers lost as a result of increase in rates. That had buyers look at other, all of a sudden, they’re looking at, let’s say a $1,000,000 home at $800,000 loan, they’re now looking at a $700,000 loan to have the same payment.
The other factor that I want to talk about is housing inventory. We can see the number of closings here, but I actually have a chart here that is going to give a better explanation of the inventory situation and how the affordability has impacted that.
So right here we have the dark green, is that the sold homes? The light green is the active homes. There’s an inflection point right here when rates spiked. But before that the sold homes outpaced the active homes, which means in the market with this graph is that homes are selling very quickly. You’d have more homes that hit the market that sell very fast, all the way up until we had the spike in interest rates. When rates spiked, all of a sudden there was an inflection, the change where there’s more active homes than there are ones selling. And that’s sort of been the trend. We’re also seeing just a general trend of the number of transactions going down, which is indicated in the other chart.
Those are some of the trends that are going on. For buyers, there are a couple other things to consider. There are some, actually, programs out there that offer, in certain geographic areas, that offer lower rates and lower down payment assistance programs. I’m happy to send you a list of that and explain where those programs would apply. That would give you a little bit more buying power. For sellers, again, you just need to fix up your house, get it properly fixed up, and also be able to price it realistically.
I have two projects going on right now, listings coming on the market that we’re in the process of preparing them. One is coming up in Walnut Creek and the other one is in Crockett. They’ll be coming on the market in the next month or two. And again, properly preparing the houses for seller, that’s going to help you avoid this issue being sitting on the market.
Wrapping this up, the market’s always changing, so it’s best to align yourself with a realtor that will be your guide and help you accomplish your goals. Sometimes opportunities that I’ve mentioned before are hidden and disguised as obstacles, but with my 33 years of experience in real estate, there’s a good chance that I’ve already seen these before and I can help leverage them into your advantage.
As always, thanks for tuning in. Please let me know if I can help you or anybody you know, answer any of your questions or help you with any of your real estate matters. The next update, will include what’s going on in the homeowner’s insurance field. There’s a lot of problems with the fires and the exit of a lot of the insurance companies these days. I’m going to be interviewing a seasoned insurance agent to bring some options and ideas your way that might be helpful.
In closing, be safe. Happy New Year! Let’s talk soon!
This is Glenn Allen, your real estate guide.
