With all the news about the Fed lowering interest rates, I’m getting a lot of questions about how the Ventura market might be affected in the coming months. Let’s look at how our market is performing today and how upcoming rate cuts may shake things up.
Rates and the housing market
Back in 2020, the Fed slashed interest rates to help invigorate the economy during the pandemic. This boosted the housing market; Mortgage rates went down and home sales increased across the United States. Here in Ventura, home sales spiked in the summer of 2020 and didn’t slow down as the seasons changed. In December 2020 (usually a slow month), transaction volume was up about 65% year-over-year!
Lower rates meant higher demand, and higher demand caused prices to rise. This is what we normally see when mortgage rates fall; rates and home prices usually have an inverse relationship. However, in the years that followed we saw firsthand just how complicated the relationship between rates and prices can be.
When inflation began rising and the Fed began raising rates, demand in the housing market softened. But because rates changed so drastically in such a short period of time (going from the 3% to the 7% range), sellers were affected too. Most homeowners locked in a low rate between 2020 and 2022, either by purchasing or refinancing, and the prospect of sacrificing that rate caused many to hold the line. This created a slowdown on both the demand and supply sides of the market, so home prices did not reverse course. We did see a short-lived correction (prices reduced from peak levels), but after this we again saw an upward trajectory.
Let’s see where home prices are today here in Ventura, and then we’ll explore the possible impact of lower interest rates.
Ventura home prices and activity
Despite persistently high (albeit slightly improved) mortgage rates, this past summer the Ventura housing market was bustling and sellers did very well.
Home prices grew nearly 11% year-over-year in June and about 5% in July, and our median sale prices hit two new all-time records both months ($940,000 and $916,000, respectively). The number of homes sold in Ventura also grew, reaching 79 homes sold in July, a full 30% improvement over last July. Homes also sold relatively fast, with the median days on the market hitting 32 in July. This was slightly slower than July 2023’s 28-day median, but faster than the national median of 34.
With homes selling quickly and now exceeding boom-level prices, demand for homes in Ventura is strong by any measure. Typically, we expect the market to cool down a bit in the final months of the year, but this isn’t always what happens. When rates were cut in 2020 this wasn’t the case, so a rate cut this month could keep market activity high into the fall and winter. On the other hand, people don’t like making big purchases right before a high-stakes election, so we may see a temporary curtailing of demand. Taken together, lower rates mixed with uncertainty could result in a slowdown typical of our seasonal patterns (not worse, but also not better).
Gradual rate cuts
Given how costly it has been to buy a house in the past few years, people are understandably eager to see rates come down. However, don’t expect to see rates plummet like they did in 2020. Experts are saying it is much more likely that the Fed will incrementally lower rates over the next few years. Overall, this would be a much more balanced approach that should help ease more buyers into the market without jolting home prices in one direction or the other.
More demand and more supply
There’s no doubt that even gradual rate decreases will cause demand to increase (especially after the election), and it will also cause supply to increase. More resale homes will hit the market, because sellers will feel better about buying a replacement. We can expect both these things to happen—the only question is the degree to which supply and demand change.
On the demand side, lower rates will rapidly bring more first-time buyers into the market (the group hardest hit by high rates). It will also compel more investors to get into the market. This may be tough to believe, as there is already an overwhelming number of investors looking for deals. I get 2 - 3 phone calls weekly from investors with cash looking for more projects to buy. Lower rates will lead to investors underwriting higher resale values when they complete their projects.
On the supply side, in addition to more resale homes hitting the market, we should begin to see more new home inventory. Homes and condos take time to build, but as rates decrease and inflation improves, the cost of building improves along with profitability. But like investors, developers need security in the stability (or future growth) of the market, so they won’t break ground just because rates go down. Since it may take a while longer to draw meaningful conclusions, I don’t expect to see a ton of new building permits this fall. This will likely change by winter and spring, so we may see a good increase in new home construction by this time next year.
The market ahead
I will be keeping a close eye on how supply shifts to accommodate the bump in demand, as too much of an imbalance could cause the market to become even more competitive or quite a bit softer.
My guess? The market may be cooler this fall, and more competitive this winter and spring. Demand through early November may be tempered by election uncertainty, and meanwhile supply may increase due to lower rates. This could cause prices to remain the same. By winter, demand may catch up to the supply increase and prices may stabilize or rise. By spring, I expect demand to increase at a faster rate than supply (the opposite of what might happen this fall). Spring is usually a busy season, and by then we’ll probably have two or even three rate cuts. Assuming no big economic disruptions, prices should increase without greatly affecting demand, as lower interest rates would make those increases more tolerable for buyers.
Bottom line
Upcoming rate cuts will absolutely affect supply and demand in both the national market and here in Ventura, but we don’t yet know which side will be affected more (or how other factors like seasonality and the election will play a role). That’s why it’s tough for analysts to agree on an outcome, and why the best I can do is offer an educated guess. (Sadly, my crystal ball has gone missing. I blame my toddler.)
What’s not uncertain is this: I’ll be watching the market carefully and helping my clients navigate it successfully. I’ve always worked hard to get the best results, and will continue to as the market shifts. If you have questions about the Ventura market or are considering a move, give me a call today at 805.707.4121.
