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Meet the Other Hand

Tips & Advice

Meet the Other Hand

Happy January.  This is the time of year where optimism typically reigns supreme in the Pleasanton real estate market.  And all of my clients want to know the same thing… what is the outlook for the market this year.  Let’s take a look at the major factors that will likely impact the market and introduce you to the other hand.

Median price increasing.  The median sales price in California is at an all-time high at $867,000, up 6.5% since 2023.  With constrained inventory likely to continue for the foreseeable future, this trend may well continue.  The California Association of Realtors is forecasting a 4.6% increase this year in the median home price for the state.

On the other hand, every rise in home prices and/or interest rates without a corresponding increase in income erodes affordability, which could ultimately limit appreciation.  Indeed the housing affordability index shows that affordability is at an all-time low in California, which will certainly impact prices

Supply/demand imbalance continues to be a problem.  While the population and job creation in CA has continued to grow historically, there simply has not been enough housing built to accommodate the increase.  In fact, residential permits in CA by decade show a significant decline in new housing being built

On the other hand, high housing prices, increased traffic, and deteriorating quality of life in many areas has caused many residents to move out of California.  Additionally, many large employers have also relocated out of state due to the increasing cost of doing business in the state. 

The Fed has lowered interest rates.   Yes, the Fed, convinced that inflation has been tamed, has lowered the Federal Funds Rate by a full 1% since September. 

On the other hand, average mortgage rates have increased by about 1% since October, now standing at over 7%.  The mortgage market is essentially a bond market, driven by investors and the yield they are willing to accept.  Clearly investors are not so sure inflation is in check

Inflation has been tamed.  The preliminary numbers indicate that inflation is running at 2.9% at the end of 2024, which is well below the 7% rate we saw in 2021 coming out of covid.

On the other hand, it is still almost one percent higher than the Fed target of 2%.  And in terms of housing, we will likely see construction costs continue to rise with the increase in demand for lumber and labor due to the fires in Southern California. And the new administration will implement policies that may push inflation higher this year.  

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