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Why home prices may not continue to drop

I have been speaking with a number of buyers who are wondering why home prices are not dropping as much as they thought they would, and if they are going to continue to drop much more. Recent data from the U.S. Home Price Index, a comprehensive measure of home prices in 20 cities, reveals a notable upward trend in home prices for the second consecutive month. But what is the story on the Monterey Peninsula?

Home prices here remain strong and I believe the main reason for that is the low supply. The graph above illustrates supply/homes on the market in the County since January 2018 (blue line) and home sales volume in the County since January 2018 (orange line).

If the amount of homes available on the market were to return to pre-pandemic levels of around $1.5B to $2B, I believe that would put significant downward pressure on pricing, although I do not see this happening in the near future. While some potential buyers are sitting on the sidelines, sellers are too in hopes of lower mortgage rates.

The impact of mortgage rates on housing affordability and market demand, coupled with the influence of available inventory, significantly contributes to pricing dynamics. I anticipate that these two balancing factors - mortgage rates and inventory - will likely maintain the current state of the local market. However, it is worth noting that the potential future reduction of the fed funds rate by the Federal Reserve, although not expected until 2024, could stimulate an increase in the housing supply.

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Jonathan Balog

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M: 831.747.0310
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Compass is a real estate broker licensed by the State of California operating under multiple entities. License Numbers 01991628, 1527235, 1527365, 1356742, 1443761, 1997075, 1935359, 1961027, 1842987, 1869607, 1866771, 1527205, 1079009, 1272467. All material is intended for informational purposes only and is compiled from sources deemed reliable but is subject to errors, omissions, changes in price, condition, sale, or withdrawal without notice. No statement is made as to the accuracy of any description or measurements (including square footage). This is not intended to solicit property already listed. No financial or legal advice provided. Equal Housing Opportunity. Photos may be virtually staged or digitally enhanced and may not reflect actual property conditions.

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Why home prices may not continue to drop

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