The Big Story: Median monthly P&I payment decreasing by 1.84%.

February 20, 2025

The Big Story

Quick Take:

Mortgage rates have ticked back up to roughly the same levels, as they were at prior to the Fed issuing its first rate cut in September.
Although housing affordability remains a concern, things have gotten slightly better year-over-year, with median monthly P&I payment decreasing by 1.84%.
Year-over-year growth in inventory is outpacing existing home sales by roughly 7%, meaning we could see affordability begin to increase over the coming months.

Note: You can find the charts & graphs for the Big Story at the end of the following section.

*National Association of REALTORS® data is released two months behind, so we estimate the most recent month’s data when possible and appropriate.

CLICK HERE TO JUMP TO SAN FRANCISCO DATA

Mortgage rates have returned to pre-rate cut levels

One very interesting phenomenon that we’ve seen play out over the past few months is that interest rates have largely returned to the levels that we saw prior to the Fed’s first rate cut in September. Unfortunately this is not what the market at large was expecting to see, since mortgage rates typically move in tandem with the Federal Funds rate. However, this suggests that the lending market expects the rate cuts that we have seen recently to be short lived, meaning that the lending market is expecting the Fed to begin increasing rates again within the coming years. This could be due to a variety of reasons, but inflation is the most likely culprit for rate hikes, as it has remained rather stubborn since it first became an issue in 2022.

Inventory is finally starting to build throughout the US

As we all know, inventory levels have been an issue Post-COVID, across the entire country, with many areas not having nearly enough inventory to support buying demand. This, in turn, helped to push up the values of homes nationwide.

It’s important to note though, that we’re beginning to see inventory growth outstrip existing home sale growth, as in December, inventory grew by 16.16% on a year-over-year basis, whereas existing home sales grew by 9.28% year-over-year.

Median sale prices continue to rise, despite interest rate headwinds

Many buyers still have the mortgage rates that they saw in 2021 and 2022 at the top of their mind, making it difficult for them to justify locking in a mortgage in the 6%-7% ranges that we’ve been seeing over the past couple of years. Despite many buyers sitting on the sidelines, and waiting for lower rates, we’re still seeing the median sale price of homes increase.

In both the months of November and December, the median sale price of a home in the United States was $404,400. This represents an increase in value of 6.03%, when compared to the December 2023 median sale price of $381,400. This is slightly concerning, given that the growth in median sales price continues to outstrip the growth in inflation, with December’s year-over-year CPI figures coming in at 2.9%.

The Fed continues to unwind its mortgage backed securities

As many of us know, in addition to the Federal Funds Rate, the Fed also has control over its own balance sheet. Throughout the COVID crisis, the Fed ramped up its purchase of mortgage backed securities at a rate we haven’t seen since the Great Financial Crisis. However, the Fed has since been unwinding its holdings of MBS’s at a steady rate, since late 2022, which it continues to this day.

How does all of this effect my local market

Although it’s great to know what’s happening at a national level, real estate is an incredibly localized industry. There are areas throughout the country that are doing considerably better or worse than the nation at large. To ensure you’re informed on the happenings at both a national level and a local level, we’ve included our local lowdown below. In our local lowdown, you’ll find the in-depth coverage you need to stay in tune with your area. As always, we’ll be monitoring the housing market and the economy from both a macro and micro level, and report back to ensure you’ve got the data you need to make the best decisions possible!

The San Francisco Local Lowdown

Quick Take:

In January, we saw considerable decreases in San Francisco, in terms of both single-family homes and condos.
Despite the notable decreases in median sales price in San Francisco, single-family homes are still selling for more than asking price, on average.
Active inventory levels are considerably lower than this time last year, despite a healthy amount of supply hitting the market.

Note: You can find the charts/graphs for the Local Lowdown at the end of this section.

The January drop-off

While median sale prices were holding steady throughout the fourth quarter, despite rising interest rates, we saw a considerable fall in the month of January. The median single-family home sale price fell by 9.68% to $1,422,500. Whereas the median condo sale price fell 8.76%, to $990,000. Despite relative strength post-rate cuts in the San Francisco market, prices are starting to tick back down to reflect the increased costs of borrowing.

Single-family homes in San Francisco are still selling for over listing price

There’s a rather interesting phenomenon happening in San Francisco. If we were to tell you that the median sale price for homes dropped by nearly 10% on a year-over-year basis, you might assume that homes are selling for less than asking. However, that’s not the case in San Francisco. While the median condo is selling for slightly less than asking and fetching roughly 96% of its original price, the median single-family home is still fetching 105% of its original asking price. Despite the fact that prices fell a bit in January, by no means is the San Francisco market weak!

Inventories in San Francisco weren’t just a 2024 problem

In 2024, active inventory was a huge issue for the San Francisco market. There simply weren’t enough homes on the market to satisfy the overwhelming demand. Unfortunately for buyers (and fortunately for sellers), this issue looks like it will continue to persist in 2025. In the single-family home market in January, we saw 18.38% more new listings, 34.07% more sold listings, and 10.34% fewer active listings on a year-over-year basis.

In terms of the condo market, we saw 12.62% more new listings, 17.71% more sold listings, and 10.91% fewer active listings on a year-over-year basis in January. Unfortunately, the downtrend isn’t showing any signs of slowing up, so naturally, we can expect this inventory issue to persist into the foreseeable future!

San Francisco is entirely a sellers’ market

When determining whether a market is a buyers’ market or a sellers’ market, we look to the Months of Supply Inventory (MSI) metric. The state of California has historically averaged around three months of MSI, so any area with at or around three months of MSI is considered a balanced market. Any market that has lower than three months of MSI is considered a sellers’ market, whereas markets with more than three months of MSI are considered buyers’ markets.

With just 1.1 months worth of single-family homes and 2.8 months worth of condos available for sale at this point in time, the entire San Francisco market has become a sellers’ market. The slow trickle of supply that we’re seeing simply can’t keep up with the overwhelming demand we’re seeing in the market, making it tough to strike a deal!