What do recent changes mean for the Real Estate Market?

There have been lots of changes in real estate recently that will impact fluctuations in the market, so Chaney Real Estate Team has been digging into current trends. We have also been chatting with our partners to better understand the impact to home buyers and sellers. Check out our updates below from C.A.R. and Intercap Lending.

2025 REAL ESTATE MARKET TRENDS

The California Association of Realtors (C.A.R.) released its 2025 Economic & Housing Market Forecast at its annual conference last week. Home sales are expected to rise by more than 10% next year as dwindling interest rates help to bolster demand and unlock critical housing supply to generate a second consecutive uptick in transactions. Home prices are expected to continue their upward trend as well since the increase in supply will still leave inventory very tight by historical standards. Even though inventory will be up from the past two years, it will only help to normalize price growth from the double-digit range, where it was earlier this year, into the mid-single-digits in 2025. Fortunately, the economy is currently forecast to narrowly avoid a recession, which should be a net positive for housing next year as well.

Existing, single-family home sales are forecast to total 304,400 units in 2025, an increase of 10.5 percent from 2024’s projected pace of 275,400.
California’s median home price is forecast to climb 4.6 percent to $909,400 in 2025, following a projected 6.8 percent increase to $869,500 in 2024 from 2023’s $814,000.
Housing affordability* is expected to remain stable at 16 percent next year after slipping to a projected 16 percent in 2024 from 17 percent in 2023.

Housing supply conditions will continue to improve next year, but a moderate increase rather than a surge in active listings should be expected in 2025. In the next 18 months, interest rates will decline, the lock-in effect will loosen up further, and more properties will be released onto the market. Homeowners who have delayed moving and investors who have been waiting for a market bounce-back will put their properties up on the market as they see the rising trend in home prices as an opportunity to sell. While supply in 2025 will remain below the norm by historical standards, active listings will increase slightly above 10% as market conditions and lending environment continue to improve.

“Although inventory is expected to loosen as rates ease, demand will also increase with lower mortgage rates and limited housing supply, which will push home prices higher next year,” said C.A.R. Senior Vice President and Chief Economist Jordan Levine. “Price growth is expected to be slower, but the housing shortage will keep the market competitive outside of big economic shocks, so prices will still rise. Assuming a healthy economy in 2025 that slows but doesn’t shrink, home prices should rise modestly across California, with the state’s median price climbing 4.6 percent to reach $909,400 in 2025.”

THE FED CUT RATES… NOW WHAT?

(update provided by Alyssa Davis, Intercap Lending)

At long last, the Federal Reserve announced on September 18th that they would be lowering the target federal funds rate by 50 basis points; the first rate cut since March 2020. The average consumer might expect that to cause mortgage rates to drop too, when in fact, they’ve actually crept up since the Fed announcement.

Why?

While the Fed rate cut will have an immediate impact on things like credit card and Home Equity Line of Credit interest rates, mortgage rates work differently. The market had already priced in the anticipated action by the Fed. There had been a considerable improvement in mortgage interest rates between their meeting on July 30th-31st – where they clearly signaled a pending rate cut – and the September meeting on the 17th-18th. While the Fed has indicated that future rate cuts are expected, the question is “how soon” and by “how much.” The market will be closely watching inflation and employment data, as well as comments by Jerome Powell and other Fed members, over the weeks and months to come. Powell said just recently the Fed is “not on any preset course.”