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Silicon Valley house hunters having a difficult time finding homes for sale aren’t alone. Low housing inventory seems to be a nationwide phenomenon.
Despite more potential buyers hitting the market in recent years, home sales have declined each year since 2020, with the number of homes sold nationwide last year the worst on record since 1995, according to Lawrence Yun, chief economist for the National Association of Realtors.
The first half of this year hasn’t seen much of an upturn, Yun added.
“It’s not a question of lacking buyers; we still have multiple offers. We need more inventory,” Yun said during the association’s Real Estate Forecast Summit on July 22.
“We have 70 million more people than in 1995, and last year had the lowest annual sales since (then), due to a severe lack of inventory and a standoff with mortgage rates.”
Despite this year’s slow start, Yun anticipates that the market should improve in coming months as mortgage interest rates are expected to drop, and homeowners who have been reluctant to sell can no longer wait due to life-changing circumstances, such as marriage, divorce or a new job.
Currently, the number of homes for sale is about 15% higher this July than the same time last year, and while the construction of new homes is slow, it is doing reasonably well, he said.
The market could see as many as 1 million more home sales if reluctant sellers decide to step off the sidelines and sell their homes.
The “lock-in” effect – a phenomenon in the housing market where homeowners are reluctant to sell their homes due to rising mortgage rates – is a key driver impacting inventory levels.
Right now, homebuyers are stuck with near 7% mortgage interest rates, Yun said.
That could change by this fall.
The Federal Reserve announced on July 31 that interest rates could be cut as soon as the Fed next meets on Sept. 17-18, if inflation continues to fall. This would be the first rate cut in four years, the Associated Press reported.
“We’re getting closer to the point at which it’ll be appropriate to reduce our policy rate, but we’re not quite at that point,” Federal Reserve Chair Jerome Powell told the Associated Press.
Over time, lower Fed rates should reduce borrowing costs, including mortgage rates.
Should rates fall, Yun said sales could increase by the end of the year and definitely in 2025. Total home sales could return to 2019 pre-pandemic levels in 2026.
Silicon Valley Association of Realtors (SILVAR) is a professional trade organization representing 5,000 Realtors and affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term Realtor is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of Realtors and who subscribes to its strict Code of Ethics.
Linda Taaffe contributed to this article.