The mortgage rates in the United States soared to the highest level since the end of 2023 in May, but the Federal Reserve (Fed) decided not to cut interest rates after its recent meeting. Reports indicate that the trend of mortgage rates has not only suppressed home sales but also added considerable instability to the overall housing market.
In California, for example, the seasonally adjusted annualized rate showed that the total sales of existing single-family homes in May reached 272,410 units, a 1.1% decrease from April and a 6% drop from the same period last year.
The California Association of Realtors (C.A.R.) pointed out in its latest statewide report that high interest rates have hindered monthly and annual home sales in California, resulting in relatively subdued home sales activity since the beginning of the year.
However, this has not dampened the surge in prices: the median home price in California exceeded $900,000 for the second consecutive month in May, reaching a historical high. More and more sellers are listing their properties on the market.
The median home price in California for May was $908,040, an increase of 8.7% from $835,280 in May of the previous year. The average price per square foot for existing single-family homes was $446.
Among them, the San Francisco Bay Area saw the largest year-on-year increase in median home prices, rising by 11.9% compared to the same period last year, while Southern California saw a 10% growth. The Central Coast, the Far North region, and the Central Valley also experienced rising prices. Seasonal factors and tight housing supply are expected to continue putting upward pressure on prices in the coming months.
Jordan Levine, Chief Economist at C.A.R., stated, “In the past few months, especially in lower-priced markets, the persistent shortage of homes for sale continues to drive California’s median home price to historic highs.”
He predicted, “As mortgage rates retreat from their peak and market competition intensifies, there may be even more room for growth in California’s median home prices before the end of summer.”
However, the overall housing price growth in the United States is slightly different. Real estate brokerage firm Redfin stated that although U.S. home prices remain at historic highs, the rate of increase has slowed down. As the locking effect of mortgage rates continues to dissipate, the number of homes listed for sale is expected to continue to slowly increase.
Chen Zhao, Economic Research Director at Redfin, said, “We learned last week that inflation continued to cool in May, which means mortgage rates may decrease by late summer or early fall.”
“The decline in mortgage rates will bring both buyers and sellers back to the market, which could accelerate price increases or moderate them, depending on which side re-enters the market more aggressively,” he said. “If sellers return faster, prices may cool off, but if buyers return faster, prices may rise.”
The strong sales performance of high-end homes is also one of the reasons contributing to steady price growth. The report indicated that the sales of million-dollar homes in California are growing faster than those of lower-priced properties.
Currently, homes priced above $1 million account for 36.6% of total sales in California, reaching the largest share in at least the past five years.
A recent survey conducted by Redfin investigated the top renovation styles that buyers of high-end homes prioritize when choosing a property. The results showed that buyers most desire double vanity bathrooms, kitchen islands, and walk-in pantries.
The survey also revealed that if the kitchen decor in luxury homes is outdated, more than half of buyers are unlikely to make an offer. Additionally, homes lacking curb appeal, outdated bathroom renovations, and popcorn ceilings are likely to deter potential buyers.