Collins: A year of market challenges

The local housing market had its share of challenges this year.

Mortgage rates topped 8% while inventory was at an all-time low. Shortage of inventory led to higher housing prices as local demand remained strong. These contributing factors, combined with higher mortgage rates, led to decreased affordability, making it exceedingly challenging for potential homeowners.

Overall, sales were down for the second year in a row. The following slide was provided by Jordan Lavine, senior vice president and chief economist of the California Association of Realtors at our general membership meeting in November.

Fortunately, the 2024 housing market is trending in a positive direction. Lavine is predicting an almost 23% increase in the state. Just in the past couple of weeks, mortgage rates have dropped to as low as 6.5% while the Fed has signaled cuts may be coming next year.

In addition to increased affordability, the lower rates may unlock some much-needed inventory.

In California, 68.5% of homeowners have a fixed mortgage rate of less than 4%. These fixed rates have translated into low incentives for sellers to put their houses on the market. However, as rates come down and the delta between their existing rate and their new mortgage rate shrinks, this should unlock the resale market. Regardless, life-changing events such as having a child, getting married, getting a divorce, job changes, retirement and death always tend to drive home sales.

Affordability will continue to be a challenge for potential home buyers next year, but for those who can take the leap, the benefits are undeniable—especially as it relates to housing and financial security.

The National Association of Realtors is attempting to address the challenges of inventory and lack of inventory with Congress. It’s hoping to raise capital gains exemptions and tie it to CPI moving forward. The thought is that longtime homeowners, such as seniors on a fixed income, may be more inclined to move if their tax burdens became reduced. Instead of living their remaining years in an oversized home, it may be more lucrative to downsize or move closer to family members. Another proposal is to tie tax incentives to sellers that sell to first-time home buyers.

Ultimately, we need to increase the construction of homes to meet demand, subsequently increasing affordability.

San José Spotlight columnist Neil Collins is CEO of the Santa Clara County Association of Realtors, a trade association representing more than 6,000 real estate professionals in Santa Clara County and surrounding areas. Contact Neil at [email protected] or follow @neilvcollins on X, formerly known as Twitter.