Our experience here at Wiest Realty, Inc. (CA DRE 01183800) has taught us that many “investors” have little or no understanding of real estate cycles.  We can’t count how many times investors have asked us  -“when will the next recession start?”  Most of us are concerned about the bottom line which is price movement. When will prices drop (or when to sell) and when will price increase (when to buy).  Median price trends don’t necessarily correspond with recession cycles. It’s just as important to know what’s happening as well as why it’s happening.

We don’t expect major median price declines until supply starts pushing the 4.5 to 5 month mark.  June 2024 California unsold inventory was still only 3.0 months. The California June ’24 year over year median price increased 7.5% to $900,729. This is in spite of a very low Q2, 2024 traditional affordability index of 14% and high 30-year rates just under 7%.

The Fed Funds rate showed a reasonable spread between the low 5% level and the June 2024 inflation rate. However, since inflation is slowly falling, a Fed rate cut in September is still in the cards. It is clear to us that low supply is the only reason prices maintain their general upward momentum. 

The data below shows the Fed Funds Rate being historically at or above the inflation rate. As you can see below, as of June 2024, the Fed Funds Rate  is  slightly above 200 basis points over the inflation rate. The 30-year fixed rate APR has historically been above the Fed Funds Rate and the inflation rate. Inflation for June 2024 (year over year) was reported at 3.0%.   As of June 2024, the 30-year fixed rate was about 150 basis points higher than the Fed Funds rate and about 380 basis points above the inflation rate. Hence, we’re expecting a drop in rates to the high 5% to low 6% level by the end of Q2′ 24.   If you’re thinking of holding off on selling – remember it took 16+- years (adjusted for inflation) for the 2022 median price peak to equal the 2008 price peak. Do you want to wait that long to sell? 

Here’s a close up view of the gaps between rates:

California single family 1st quarter 2024  affordability index was reported at 17%. That’s actually up from the 3Q ’23 level of 15%.  If you read our charts, you’ll know that under normal circumstances this would imply price declines are likely. However, low supply is not a normal circumstance with high interest rates. We believe supply has a way to go before  median prices trends change course . Unlike the last time the traditional affordability index was at this level, we now have some mitigating factors (in addition to supply levels) that may lessen the impact on median prices. 

Momentum data indicates that year-over-year median prices crossed the zero line in August 2023. This is generally considered a buy signal. Upward year-over-year  momentum has been sustained through June 2024. Median price drops between August and February were common since 2011. Check out momentum charts on our web site.  

  Factors that were not present during the last crash include:

1. Home owners are sitting on much more equity now. Thus, a greater buffer exists before negative equity develops. Owners have not used their homes as ATM’s this time. However, savings rates are decreasing rapidly. In March 2021, the personal savings rate approximated 26%. In June 2022, it hit a low of 2.7% and the most recent was reported for May 2023 at 5.3%. As of June 2024 the rate stood at 3.4%.

2. Owner FICO scores are generally higher now than they were during the last crash. Consumers are more financially responsible this time.  However, consumer revolving debt as at a near high of just over a 1.059 trillion dollars as of the 1st week in July 2024. That’s not a good sign.

3. Slightly over 80% of primary residential mortgage loans in this country carry an interest rate below 4%. This suggests that homeowners will not be willing to enter their move-up market where 30-year fixed rates are now in the upper 6%+- area (June 2024). Hence, this lack of upward move-ups would suggest downward pressure on supply will continue. Adjustable loans may help the move-up market and thereby increase supply, however, at this point, it’s too early to tell.

4. Homeowners are in a good position when it comes to debt service as a percent of personal disposable income.  As of Q4 2023, debt service payments relatively low.  This should mitigate supply increases.

If you’re thinking of selling, you’ve missed the peak in our market area. However, the good news is, media prices are now generally increasing. Note how year-over-year median price momentum has risen above the 0% line. Low supply is keeping prices high in spite of low affordability and high interest rates.  

Don’t try to arbitrarily time the market with preset dates or time frames. Look for economic events before making your decisions.  We’re here to help. Feel free to call us for our take on the important economic events that we use for our own investment decisions. Check out our “Leading Indicators” page (and drop downs and “buy-sell” indicators) for information and our observations on key indicators. Or, fill out the “Contact Us” page with your questions or suggestions.

We decided to develop this website as your real estate EKG. We believe any prediction of a recession should be based on events; not on an arbitrary guess at a time frame. 

The intent of this site is to provide you with timely information  regarding macro/California trends as well as local High Desert trends.  Basing your real estate decisions on hard data is preferable to pulling the trigger based on gut feelings. to I