We have been asking, probably praying, for lower mortgage rates to boost the real estate market.

Finally, our hopes and prayers have been answered.  Last month, the FED lowered rates.  Following that announcement, mortgage rates remained unchanged.

Wait.  What?

In August, two months prior to the Fed meeting, mortgage rates decreased.  However, after they formally announced the change, mortgage rates remained unchanged.  Doesn’t the FED have any control over mortgage rates?

Of course it does.  In recent years, the Fed purchased massive amounts of mortgage-backed securities.  That lowered mortgage rates.

However, instead of buying more securities now, the FED is selling off its inventory.

Back when I began real estate, there was a question on the Broker exam about where mortgage money comes from.  The answer used to be insurance companies, particularly life insurance.  That is no longer the case.  The mortgage market is now part of the general investment community, aka Wall Street.

Mortgage rates are more aligned with Wall Street than with the FED.  Why do we have mortgage rates move down when the FED is expected to announce a rate cut, but when they make the actual announcement nothing happens?  Because that is what Wall Street does.  It looks to the future.

Timing is important.  Changes do not all happen at the same time, on the same day.  Some changes can occur in advance based on expectations.

The Federal Reserve most recently cut interest rates on Sept. 17, lowering the federal funds rate by 0.25 percentage points, from a range of 4.25%–4.5% to 4.0%–4.25%.

There was an expectation in August that the FED was going to lower interest rates in September.  When that expectation surfaced in August, mortgage rates were lowered, which brought buyers back into the market,  Contracts were signed in September and escrows closed in October.  The EXPECTATION of lowering FED rates precipitated the change in mortgage rates a couple of months prior to the actual FED announcement. With lower mortgage rates, buyers started buying.  But those sales were reported as closed a month later.

Timing is important.

Fannie Mae recently revised its mortgage rate forecast and other predictions about the U.S. economy in its September report.

Among its projections are: Mortgage rates are expected to end 2025 and 2026 at 6.4 percent and 5.9 percent, respectively, compared to 6.5 and 6.1 percent in Fannie Mae’s prior forecast.   Mortgage rates have averaged 7% over the past seven decades.  The orange line in the chart below is the average rate since 1971.  The anomalies caused by 1) the dot-com bubble, 2) the GREAT RECESSION housing collapse and 3) Covid, pushed rates below the decades-long average.  Buyers waiting for rates to go much lower are in reality hoping for the next economic crash.  6% is a good rate.  Buy that house now!

The chart below expands the most recent period of time, again showing mortgage rates as basically stable.

But how good is that Fannie Mae forecast, and what could go wrong?

WIth the unknown effects of tariffs on inflation,  and the current government shutdown, UNCERTAINTY is the biggest problem keeping mortgage rates from declining.  Mortgage rates are long-term, they are a 30-year bet.  Despite expectations that mortgage rates would fall below 6% after multiple rate cuts, they unexpectedly rose again toward 7%, catching both economists and prospective homebuyers off guard.  Now the government has shut down, and unemployment figures are unavailable, thereby causing more uncertainty.  Consumer Sentiment is now as low as it was in 1981 (when mortgage rates were approaching 16.6%), Consumer Confidence is as low as it was in 2009 during THE GREAT RECESSION, and as low as it was in 2022 (COVID).  Consumer confidence is of utmost importance to a thriving economy, since consumer spending is the number one driver of our economy.

Mortgage rates are used to compute monthly payments, and those increasing percentages result in more real dollars being needed.

In addition to mortgage rates causing monthly payments to be higher, the total dollars required for down payments have increased.  Although the down payment percentage of the purchase price has remained the same,  home price appreciation has required both more dollars for the down payment and an increase in the monthly mortgage payment amount due to larger mortgages.  Since 2010, both average and median home sale prices have increased by about twofold, causing required down payments to double, making getting into homeownership more challenging.

Both down payments and monthly payments are therefore higher as a result of price increases.

Let’s go back to our discussion of the timing of rate cuts.  California pending sales in August rose 8.3 percent from July as mortgage rates fell to a 10-month low. On a year-over-year basis, pending sales edged higher by 0.2 percent for the first time in nine months. Rates have continued to ease in recent weeks, reaching their lowest level in a year amid mounting signs of economic weakness. Thus, both a modest improvement in mortgage rates and stabilizing home prices boosted California home sales in August.  We felt that boost continue into September.

Mortgage rates today are getting closer to 6%.

People have housing choices including what to buy (new construction versus existing homes) and renting.  We usually discuss only existing home sales.  What of the other two, new construction and rents?

According to the latest data for the U.S., newly built homes are now cheaper than existing ones as developers navigate an oversaturated new housing market where sellers far outnumber buyers.  New homes inventories are high, and builders have been lowering prices to move inventory.

For the U.S., the median sale price of a new home in June, according to the latest data made available by the Census Bureau, was $401,800, down 4.9 percent from a month earlier and 2.9 percent a year earlier. In the same month, the median sale price of an existing home was $435,300, according to data by the National Association of Realtors (NAR), up 2 percent year-over-year.

It is rare for newly built homes to cost less than older existing ones. According to real-estate analyst Nick Gerli, founder and CEO of Reventure App, this is only the sixth time in 26 years that this has occurred.

Existing home prices have now been rising year-over-year for seven straight quarters.  However, according to data reported by the National Association of Home Builders (NAHB), new home prices have been falling steadily year-over-year for even longer, eight consecutive quarters.

The third alternative, rents, have stabilized after years of increases.  Consumers do have choices—buy new, buy existing, or rent.  We have experienced a period of time when all three choices were rising in unison.  That is no longer the case.

Time to look at our local markets.

For the Conejo Valley, inventory continues to rise compared to a year ago, but not as much.  Still, a 61% increase from last year signifies that we no longer have an inventory shortage.  But for the first time in the past few years, both Median and Average prices are down.  The number of sales was the same as last year.  The current inventory represents three months of current sales, signifying a balanced market, favoring neither buyer nor seller.

Major changes can be seen in the bottom half of this table.  The tranche of homes between $1 million and $1.5 million encapsulates both the Median and Average prices.  That  grouping had strong sales (+15%) compared to last year.  But the highest priced group of homes, priced over $1.5 million, had a decrease in sales compared to last year of 15%.  This highest price grouping has provided strength to our market, but that strength is finally waning.  Those homes presently currently represent 39% of all Conejo listings.

Conejo Valley inventory has grown strongly, now looking more like the “normal” pre-covid years of 2018 and 2019, instead of the past two years of 2023 and 2024.  Inventory is roughly double what it was the last two years.

Simi Valley and Moorpark had a history of extremely low inventory for the past couple years, but that inventory is now higher than last year by 81%. While the Average price is the same as last year, the Median price is down 3% versus last year.  These comparisons are based on three months of sales.  (The chart that shows pricing by each month will be available below. ) I use three months because often the numbers are so small as to give false impressions, so averaging over time smooths that out.   The number of sales (closed escrows) is up 10% versus a year ago.  The biggest tranches (62% of all listings) are the under-$1 million.  Simi/Moorpark has been restricted for athe past few years by low inventory, so the combination of more inventory and reduced mortgage rates have brought out the buyers.

For Simi/Moorpark, who have experienced very low inventory for a very long time, inventory is triple what it was two years ago.

Inventory is up, homes are available for sale, mortgage rates have declined.  How has that impacted closed sales?  Conejo sales continue to be low, comparable to the past two years.  The current month of sales (150) is well below the four year average or pre-COVID sales for September of 243.

For Simi/Moorpark, the same result.  We are tracking a duplicate of the past two years, with the number of sales in September (123) comparing unfavorably to the 4-year pre-COVID average of 205.

To reinforce that 2025 sales are mirroring 2023 and 2024 sales, here are the two charts that show how the sales totals accumulate as the year progresses.

Finally, lets look at prices with more detail.  These are monthly, not three-month, average and median prices.

For the Conejo Valley, Median prices are slightly decreasing while Average prices are dropping.  This is due to the mix of home prices, more lower priced and fewer higher priced.

For Simi/Moorpark, the same thing is happening.  Median prices are stable, while Average prices are receding.

What does this portend for the future?

The figures above represent large areas.  All real estate is local.

Averages paint a broad brush picture, but your clients need you to be their expert on what pricing and sales are doing in their area, on their block.

Your clients are interested in the market, but more specifically the value of their own home.   You need to provide them more detailed information.

Finally, one last interesting piece of information from C.A.R.  There is less turnover in homes than there used to be.  Perhaps one of the most interesting graphs presented by our C.A.R. economists, many of the graphs above are thanks to them, is a measure of how long on average an owner stays in their home before moving, what they term Housing Tenure  From 2000 to 2010, people moved on average every six years.  The number today is 15 years.  That is a big change, but our business is dealing with change.

This has been perhaps the longest blog I have written.  I worked diligently to shorten it as much as possible.  Economics is not easy, and economics today has so many factors that are affecting our real estate market.  Control the factors you can.  Share the information you have.  Become and remain the person your clients trust to give them accurate guidance and information.

And stay healthy out there.

Chuck