As 2024 enters the history books, the themes that impacted home values will carry into 2025 amidst a backdrop of greater certainty and a more balanced market. Although local median home prices were down 2% in 2024, I would largely categorize the year as one in transition… unwinding the COVID trade, bringing closure to political uncertainty, working our way through a myriad of weather and natural disaster related events and settling into a “higher for longer” interest rate picture. Once the dust settles, I expect that the market will pick up steam, but performance will be spotty, with pockets of strength and weakness depending on the specific neighborhood. Identifying the right opportunity for a purchase or sale will require a bit of art, science and patience as the days of broad-based buyer demand at any price are much a thing of the recent past.
Unwinding the COVID Trade – During COVID and the shuttering of office space around the country, we saw a segment of the market moving out of the urban core and into those areas that offered more square footage, land and respite from the outside world. Locally, we saw a migration to the wine country, the coast and ski destinations as the work-from-home mandates became rooted in corporate culture. In 2024, employees began being called back to the office, and with it a return of demand to live closer. We are seeing this play out in neighborhood median prices, where prices for homes up in the hills have softened while locations closer to the urban core have fared better. In addition, a stream of new rental units has become available in larger numbers, offering competitive options and falling rents for those potential buyers who were on the fence. With one major caveat related to local crime statistics (more on that later) I expect to see further softness in values as we head up the hills as buyers vie for locations closer to all the things they sorely missed… coffee, cafes, shopping and reasonable commutes.
Politics – Historically, home prices have reacted to political uncertainty, not the specific party that occupies the White House. The definitive nature of the recent election should get us back to business as usual in sales volume. Locally, the elephant in the room continues to be the direction of crime in Oakland. Oakland values have been uncharacteristically weaker in relation to the neighboring communities of Berkeley and Piedmont, in part due to concerns about the leadership void. I expect that progress on crime and the selection of replacements for the mayor and district attorney will be a substantive catalyst for home prices in the new year.
Climate Change – Even though it’s difficult to quantify the impact on home values from climate change and natural disasters, it has an effect at the margin. The most direct relationship in our area can be witnessed in those neighborhoods considered at risk for wildfires. Homeowners insurance rates for the heavily wooded areas have skyrocketed, often rising five to ten-fold, if available at all. For buyers, this becomes an additional consideration in the overall amount they can allocate to monthly housing expenses, effectively reducing the affordability for homes in high-risk areas. Potential flooding, a consideration that was never on my radar, is now a discussion topic for those areas at or near sea level. The recent Tsunami warning that triggered evacuations in Alameda was a stark reminder of the rising risks of natural disasters. As we become more sensitized to environmental factors, we will see an even greater disparity in prices between areas considered lower and higher risk.
Higher for Longer Interest Rates – Any hope for lower mortgage rates in the near term has largely dissipated with the Federal Reserve indicating that it will take a more cautious approach to future rate cuts. Although short term rates have come down, investor concern over lingering inflation and the potential for new catalysts including higher labor prices and tariffs has propped up the longer-term rates that influence mortgages. Lenders have started offering interesting incentives including the ability of a borrower to refinance down the road at no additional cost in an effort to prop up volume while we wait for lower rates. I expect to continue to see lenders come out with a variety of creative buyer programs in 2025.
As I look to the first quarter of the new year, I see selective pockets of opportunity for buyers and sellers, but it is neighborhood and house specific. Yes, there will be those homes that garner multiple offers. But there will also be homes that sell at a price below expectations, especially if the property was bought during the height of COVID. For buyers, the best opportunities will be those properties that have not been updated or are in areas that are further up in the hills… the current market for those is soft. For sellers, it is more important than ever to be strategic about how to market your home. Buyers are more patient, discerning and budget conscious than in recent memory… a home that is made to appeal to the broadest pool of buyers will dramatically influence the outcome. Thoughtful consideration of the timing, pricing and selection of high value improvements will be particularly important in bringing your property to market… challenges that artificial intelligence alone cannot yet solve.
As always, please don’t hesitate to contact me with any questions. After 23 years in the business and within sight of a professional milestone of $1 billion in lifetime sales, I continue to love what I do and would be happy to offer any guidance in your real estate journey.
I wish you a healthy and happy new year.
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