Alarm bells are ringing about the US housing market
Alarm bells are ringing about the U.S. housing market as economists warn of slumping home sales and house prices that keep rising. But those warnings may not apply to California.
The state is vast and housing markets vary by region, but on average, the major metros in California aren’t experiencing the same slumps as the rest of the country. In parts of the Bay Area, home sales have even reached their highest levels since the peak of the pandemic housing boom, according to data from Compass.
Typically, the U.S. housing market peaks in the spring, but this year, it was tempered by a sagging stock market and the uncertainty of looming tariffs. Patrick Carlisle, chief market analyst for Compass Bay Area, said even despite a lot of economic uncertainty, much of the Bay Area is bucking the trend of the tumbling nationwide housing market. “The South Bay is one of the strongest markets in the country. Maybe it’s the strongest because of the AI boom,” Carlisle said.
He said the concentration of wealth brought by tech companies is helping the luxury sector perform particularly well, though he notes that that segment of buyers is often unaffected by mortgage rates. In the South Bay in the second quarter of the year, sales of homes priced at $5 million and above soared to their highest number since the peak of the pandemic homebuying boom, and home sale prices were up year over year in affluent markets like Atherton, Hillsborough and Menlo Park.
San Francisco had a similarly successful second quarter relative to the rest of the country. Median home sales were up 8% from the first quarter of the year and up 3.5% since the same time period in 2024. Even the condo market, which had been struggling since the pandemic, was up 10% year over year according to Compass data.
“The Bay Area is still one of the richest, most educated, most diverse areas in the world. Its housing market has a tendency to continue to chug along,” Carlisle said.
Home sales across California are flat year over year, according to the most recent report from the California Association of Realtors, but median days on market have increased 33%, which can indicate a slower market. The amount of unsold inventory has also increased 26.7% year over year to 3.8 months of supply. That’s still a relatively low number — six months of supply or more typically defines a buyer’s market — but during the pandemic buying boom, buoyed by low interest rates, that figure dipped as low as 1.5 months of supply.
There is more inventory on the market, but in an inventory-starved state like California, that figure would have to be much higher to bring price relief. While that nominal increase in supply may feel like a buyer’s market for some, said Jordan Levine, the chief economist for the California Association of Realtors, “[California is] still a place where there’s too much demand and not enough supply,” he said.
The last time supply was at this rate was October 2019.
Meanwhile, there are still a lot of economic factors at play, like stubbornly high mortgage rates. That led Mark Zhandi, chief economist of Moody’s Analytics, to write on X this month, “I sent off a yellow flare on the housing market in a post a couple of weeks ago, but I now think a red flare is more appropriate. Home sales, homebuilding, and even house prices are set to slump unless mortgage rates decline materially from their current near 7% soon. That, however, seems unlikely.”
Levine said this alarm isn’t unfounded and he thinks most potential buyers in California are “worried that something bad is right around the corner and are therefore holding off [on buying].” This could continue to slow down price growth, he said, but since prices have risen so much since 2021, it’s unlikely to spur buyers to act while mortgage rates remain high.
The Northeast, Midwest and South all experienced a decrease in home sales last month, according to the June report from the National Association of Realtors, even as median home prices rose. The West had modest increases, indicating it’s not necessarily following the same pattern as the rest of the country — yet.
“California sort of embodies the national picture better than any other region,” Chen Zhao, head of economics research at Redfin, said. “Prices are not crashing yet, but price growth is certainly weakening and it seems like we’re heading towards a scenario where price growth is going to be pretty flat or slightly negative by year end.”
