What’s the Latest?

With year-end approaching, it is a good time to give a quick market pulse for local real estate, but first, I am exploring a few interesting topics and developments in the macro environment. If it's a local market pulse you're after, skip down a few paragraphs, but you may miss something interesting!

Let's dive in:

National Market Insights: Q4 2025 Economic & Policy Shifts

Monetary Policy: Easing Rates and a Potential Shift

The Federal Reserve is clearly signaling an end to the tightening cycle, bringing borrowing costs to their lowest level since 2022.

• The Fed just delivered its third 25 basis point (bp) rate cut of the year.

• Mortgage rates are currently hovering around 6.6%.

• Looking ahead, monetary policy winds are shifting: a more dovish Fed chairman is expected next May, suggesting a path toward easier money via lower interest rates and economic stimulus. Could this trigger a new appreciation cycle?

U.S. Housing Market Correction Widens

The national power dynamic is slowly shifting from sellers to buyers, driven by affordability constraints and rising inventory.

• Price Downturn Expands: The U.S. housing price downturn is widening, with mid-tier home prices declining year-over-year in 32 major metropolitan markets (up sharply from just 6 markets in 2024).

• Affordability Crunch: Despite a national median price increase of 2.3% YoY (to $415,200), 75%+ of homes are unaffordable for typical households.

• Bifurcated Market Reality: Sales strength is concentrated in the upper price tiers, which artificially raises the median sales price even as affordability worsens for the mid and lower tiers.

• Default Risk Remains Low: Only a small fraction, around 1.6% to 4%, of U.S. homes are selling for less than their purchase price, a remarkably reassuring figure compared to the 23% seen in 2009.

Inventory and Seller Fatigue

Active listings are rising, giving homebuyers more leverage, but a growing number of sellers are pulling their homes off the market entirely.

• Inventory is Up: National active listings rose +13% year-over-year (between November 2024 and 2025), a sign that the "lock-in effect" (owners holding onto 3% mortgages) may be easing in some areas.

• Sellers Hitting the Brakes: The U.S. delisting rate recently hit 5.5% of inventory, a decade-high reading. More sellers are giving up trying to sell rather than accepting low offers after their homes have sat on the market for a long time.

• Pre-Pandemic Levels: Nationally, inventory remains 6% below November 2019 levels, but 18 states are now above their 2019 active inventory.

Construction Costs and New Home Pricing

New construction is responding to affordability pressures in a way the resale market is not.

• Cost Explosion: Construction costs have soared 39% since 2020 (well above 26% inflation). Tariffs and material sourcing will likely keep costs elevated into 2026.

• New vs. Existing Prices: Nationally, new construction prices have fallen below existing home prices. Builders are achieving this by shrinking square footage and offering incentives like rate buydowns.

• Local Market Context:

  • New home options in our area are scarce.

  • Where new construction exists, the smaller square footage often means the Price/SQFT is higher than existing homes, even if the total purchase price is lower.

  • Existing home prices are holding because tight inventory persists due to owners clinging to low 3% mortgages.

Small Business Stress and CRE Opportunity

The financial pressure on small businesses is increasing, contrasting sharply with the potential for commercial real estate to become a safe haven.

• Mom-and-Pop Bankruptcies: Filings by small U.S. businesses for debt restructuring (Subchapter V) have surged to a record high (up >8% YoY), driven by high borrowing costs and aggressive creditors.

• Cyber Monday Gap: The $14.25 Billion in record Cyber Monday sales skew heavily toward large corporations, exacerbating the financial strain on small businesses.

• Commercial Real Estate (CRE): After years of lagging returns (20% since 2019 vs. 150% for S&P 500), CRE is seen by some portfolio managers as too cheap to ignore. With values beaten down and high construction costs limiting new supply, select sectors like senior housing and quality offices could quietly become a stable investment.

Tech Wealth, AI, and California Policy

AI-driven wealth is impacting the luxury market, while California faces a budget crisis and policy challenges surrounding affordable housing.

• AI Cash Fuels Luxury: Wealth generated from AI companies (like OpenAI and Anthropic) is fueling a surge in San Francisco’s ultra-luxury housing market, reversing previous slumps in elite neighborhoods.

• California's Budget Crisis: Despite high income tax revenue growth from the AI boom, the state Legislative Analyst’s Office projects an $18 Billion budget shortfall in 2026–27.

Special Focus: Deep Dives

Silicon Valley vs. Beverly Hills: The Battle for Hollywood RE

A massive real estate and media battle has erupted over the ownership of Warner Bros.' studio assets, pitting Silicon Valley tech money against a formidable coalition of legacy Hollywood and global finance.

• Netflix's Strategic Land Grab: Netflix, headquartered in Los Gatos, made a $72 Billion offer to acquire Warner Bros.’ studios and HBO. This move is an interesting real estate play, securing ~97 million sq ft of production space and cutting $2-3 Billion in annual lease costs. Netflix wants the soundstages.

• The Hostile Counter-Bid: Almost immediately, a hostile counter-bid of $108.4 Billion was launched for the entire company by Paramount Skydance.

• A Coalition of Power: The Skydance bid is backed by a powerful group, including Oracle's Larry Ellison, Saudi/Qatar/Abu Dhabi funds, and politically connected figures like Jared Kushner. 

• The Stakes: The fight will determine whether Silicon Valley (Netflix) or Beverly Hills (Paramount) controls Hollywood’s massive physical real estate empire. The outcome is expected to be decided in 2026.

The AI Job Transformation: Amplification, Not Elimination

Recent concerns that Artificial Intelligence (AI) will cause mass job loss are being refuted by industry leaders, who argue the opposite is happening, at least for some industries: AI is making human workers significantly more valuable.

• Core Thesis: AI does not eliminate jobs; it amplifies them through "synergistic effects." AI handles rote, high-volume tasks, freeing humans for higher-value, specialized work.

• The Radiologist Example: The job of a radiologist, once predicted to be wiped out by AI image analysis, is thriving. AI performs the "studying the images" task faster and more precisely.

• The Result: Radiologists are now free to focus on complex interpretation, patient interaction, and follow-ups. Hospitals see "better economics" from higher throughput and client volume, leading them to hire more radiologists.

• Proof Point: The number of U.S. radiologists is projected to grow by up to 40% from 2023-2055, and wages are up 48% since 2016, proving AI has the ability to supercharge jobs rather than consolidating them.

Affordable Housing is Broken

The high cost of building affordable housing is a major contributor to the current crisis, with regulations and fees making low-income units significantly more expensive to construct than market-rate housing.

• Paradox of Cost: Affordable housing units often cost twice as much to build as a typical market-rate building. A recent 81-unit affordable project in Los Angeles was projected to cost $800,000 per unit.

• The Hidden Costs: This cost trap is driven by regulatory hurdles and compliance requirements, which force developers to spend millions on non-construction items:

  • $2.1 million in local impact fees.

  • $1.8 million for architectural and engineering costs.

  • Mandatory hiring of compliance, sustainability, and prevailing wage consultants all necessary to navigate complex regulations.

• Symptom vs. Cause: Policy efforts like Santa Fe's new minimum wage (which links pay to median rent) treat the symptom (worker affordability) but ignore the root cause: the shortage of housing supply.

• Inflationary Risk: If construction wages rise due to these mandates, it only inflates costs for tradepeople (plumbers, electricians), creating a wage-push inflation cycle that makes all new housing, including market rate, even less affordable.

Monterey County Sales Data

The Fourth Quarter of 2025 is shaping up to be a story of high-value inventory and a moderating market pace, even as prices remain strong compared to historical highs.

Price Stability: A New Normal for Value

One long-term story remains the dramatic and lasting appreciation in home values.

• Long-Term Price Growth: Since 2019, the average price per square foot has surged, climbing from $496 to $736 in Q4 2025 (YTD), a 48.4% increase (26.4% inflation-adjusted). This demonstrates significant, sustained growth in property values.

• Median Price Resilience: The Median Sale Price in Q4 2025 (YTD) stands at $925,000. While this is slightly lower than the recent peak of Q4 2023 ($980,000), it is up 0.8% from Q4 2024 ($918,000) and a remarkable 42.3% higher than Q4 2019 ($650,000). This stability confirms that buyer demand is strongly supporting near-record price levels.

Market Pace: Slowing Down from a Frenzy

The time it takes to sell a home is the clearest sign of market moderation.

• Median Days to Sell (MDT) Jumps: The MDT for Q4 2025 (YTD) has stretched to 31 days, a significant increase from 22 days in Q4 2024 and more than double the ultra-fast pace of 15 days in Q4 2023.

• Slower Than Pre-COVID: At 31 days, the current market pace is even slower than pre-pandemic Q4 2019 (24 days) and Q4 2022 (29 days). This suggests the market is returning to a more balanced environment, giving buyers more time to make decisions and potentially more room for negotiation.

Inventory Dynamics: More High-Value Homes Available

While the number of transactions is down, the total value of available inventory is up, suggesting a shift in what is on the market.

• Total Inventory Value is Up: The Average Active Volume (the total dollar value of all listed homes) is at $1.36 Billion in Q4 2025 (YTD). This is the highest level since Q4 2019 ($1.54 Billion) and a substantial increase over Q4 2024 ($1.28 Billion).

• Near-Perfect Sales Ratio: Despite the slowdown in MDT, the county is still selling a high proportion of its inventory. With 393 new listings and 379 sales (YTD), the effective sales-to-listing ratio is nearly 96.4%. This highlights that while homes are taking longer to sell, the supply remains constrained enough to absorb most of the new listings.