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Can you believe it!! We’re already half way through 2025. Time to look at how our market has changed. As a point of reference, I’m going to include and highlight my notes regarding the subjects from the beginning of the year.
Rates
Yes the fed has dropped the federal funds rate. However, according to Mortgage News Daily , mortgage rates haven’t progressively decreased. As of right now, the expectation is for two more fed rate cuts. This doesn’t directly correlate to lower mortgage rates. At a minimum, the hope is for mortgage rates to not increase.
We’re halfway through the year and we have not yet received any rate changes. There appears to be some amount of conflict between the Fed Chair Jerome Powell and President Donald Trump. Trump vehemently wants lower rates. Powell expresses concerns regarding tariffs and how those changes will affect our economy. There is still some level of hope for two rate cuts. That being said, according to Mortgage News Dail, rates are roughly down by about half a point.
Rent growth opportunity for first half of 2025
Because inflation has still been relatively high, most landlords will be able to increase rents by 8.9% until July 31, 2025. The general rule of thumb is 5% plus CPI with a cap of 10%. This doesn’t mean that all rents are up by 8.9%. Given that CPI is likely to come down with the Fed’s effort to combat inflation, there might not be opportunity to charge rent at an increase of 8.9%. It is probably most applicable for long term tenants who are currently under market.
For the upcoming year and in Orange County, the allowable rent increase is 8%. This indicates that CPI is at 3% and that inflation is slowly coming down. This ought to provide a little relief to tenants as well as continued growth for landlords.
Year over Year changes in Sales Price
Over the course of the past year, our average sale price slumped by nearly 20%. This is a good reflection of lower rates having a strong impact on the market. Higher rates mitigate affordability for buyers and reduce purchasing power. As rates drop/level off, it’ll be valuable to compare rates against sales prices.
Flat. Nearly absolutely flat in terms of year over year changes. This seems fair given the conjunction of more inventory and slightly reduced demand.
Affordability
Affordability has improved by about 14%. Although mortgage rates are currently a little higher than they were this time last year, purchasing a home is now a little easier for current buyers for home prices that have softened. If rates or prices come down, this will continue to improve affordability.
Affordability, slowly but surely continues to improve marginally. If the changes don’t already seem negligible, let me reinforce it with a number: 2.8% improvement in affordability. With little to no changes in year over year pricing budding up against marginally improved interest rates, buyers are getting a slight relief in affordability.
Inventory
Inventory ticked up by about 11%. This seems to support the picture of pricing coming down. With more inventory, there is less competition for buyers and greater opportunity to negotiate.
What did change significantly is the increase in inventory. Our inventory grew by more than 26%. This jump would be very concerning if we weren’t in a high demand marketplace like Southern California. The other variable in this is that a lot of these sellers have a lot of equity in their homes. The sale isn’t the house of cards that drove a lot of the recession. A lot of that is about changing lending practices as a side effect of the recession.
Year over year volume of sales
On the other hand, we had a nearly 10% increase in the volume of sales. Deals got done. Buyers could negotiate. This also seems to support the idea that we aren’t crashing. Demand is still strong. However, it is muted with lower affordability in contrast to. years past.
Not quite proportionately with the increased volume of inventory, we also have an increased volume in sales. Our volume of sales increased by just over 17%. I mention the increased inventory in correlation as it reflects ongoing demand. As long as both sales volume and inventory are moving in the same direction, the market is communicating clearly: we still have good demand.
List price versus Sale Price
Ultimately, this ratio didn’t change. Sellers met the market.
Our list price versus sale price increased by 1%. This number in conjunction with our increased volume of inventory are definitely indicating the significance of pricing properties correctly.
Year over year changes in days on market
Average days on market came down. Demand is still relatively strong.
Our average days on market continued to come down by 14%. It also demonstrates that when sellers want to sell, they price their property well and meet the market.
