Happy holidays everyone!

Last month I wrote about the market as pausing at a plateau.  Prices still have upside potential, but limited potential.  There are many reasons why homeowners  decide to list their homes, and most of those reasons continue to be in effect.  There remain two major concerns that have been a factor keeping people from listing their homes: 1)  the Capital Gains Tax, and 2) high mortgage interest rate for replacement homes.

During the last half of the 20th century, IRS considered the profit on a home rolled forward into the next home purchased, with no tax due at sale.  In 1997, that changed.  The sale of a home now requires payment of a tax , usually 15%, of long-term capital gains on the profit of a home.  There is some good news.  There is an exclusion of $250,000 for single filers and $500,000 for joint filers against that profit.  However, in the past 30 years, home prices and profits have increased substantially, while the exclusions remained the same.

N.A.R. has been lobbying for increases to these 30-year-old exclusions, in addition to allowing for future changes automatically adjusted for inflation.  There is finally the prospect of movement on these changes in Washington.

On December 3, John Cornyn (R-TX), Michael Bennet (D-CO) and a bipartisan group of senators — including Adam Schiff (D-CA) — introduced the Senate’s More Homes on the Market Act. This is the Senate’s companion bill to H.R. 1340, the House of Representative’s More Homes on the Market Act.  Both bills would amend the federal tax code to double the capital-gains exclusion to $500,000 for single filers and $1 million for joint filers.

With Schiff’s participation, the bill gains a key voice from California — one of the states suffering acutely from housing shortage and affordability pressures. For REALTORS and the California real-estate market, this legislation could be especially consequential: by encouraging turnover.  That may relieve pressure in a tight market and create more opportunities for younger buyers who otherwise are struggling to find available homes.

These bills are being sent to a conference committee for reconciliation, a final vote, and then sent on to the president, who has previously expressed interest in the measure.  Passage of this measure should erase some of the resistance to selling a home and increase available inventory.

Also this week, the FED lowered interest rates again.  Mortgage rates have been dropping, making home purchases more affordable.

 

But not all the news is good.

Consumer sentiment is receding,  meaning fewer buyers are currently interested in making long-term commitments.    They are concerned about the future, and about the jobs outlook, about inflation.  WIthout confidence in the future, many potential buyers will continue to be renters.  LINK

Why is consumer sentiment declining?  I would be happy to give you some hard facts, but two months ago the head of the Bureau of Labor Statistics was fired, and very little credible information has been forthcoming from that department.  The October report has been cancelled.  The FED depends a great deal on this information, as do many of us, particularly the inflation and jobs reports.  The FED tries to balance inflation with job growth.  When unemployment rises, the FED cuts rates to boost the economy.  Presently they have to guess.  The ADP jobs report is not as encompassing as the BLS report, but they do move somewhat in concert.  Look at the chart below.  The orange lines represent the BLS reports, which have temporarily ceased to be issued.  Moreover the ADP report shows considerable weakness in the labor market, not a good sign for the economy.  The FED has taken an educated guess that the job market needed a boost, hence the latest cut in interest rates.  While that may attempt to boost job growth, it may not boost consumer confidence.

With stagnant sales and higher inventory, why hasn’t our active real estate inventory taken off?  It currently represents 2-1/2 months worth of sales.  Because home sellers are taking their homes off the market at a fast clip when they are sitting for more than 60 days, and prices are weakening.  See the LINK

The alternative to owning is renting.  Previously, apartments vacancies were low and rents were increasing.  But now, apartment rents are falling as record-high vacancies and weak demand are undercutting the multifamily market.  The rental market continues to soften, with the national median rent falling 1% in November—its fourth monthly decline—and vacancy rates rising to a record 7.2% as new supply outpaces demand.

Is the housing market ready for a price adjustment?  The above factors point in that direction.

The Conejo Valley inventory is up 58% compared to a year ago, but Median prices are down 1% while Average prices are down 7%.  The highest end of the price range continues to show the most weakness.  Overall, sales are actually up 3% versus a year ago, thanks mostly to the reduction in mortgage interest.  Homes sales priced below $750,000 took a big jump compared to a year ago.  Months worth of inventory has risen, but only to 2.5 months worth of sales.

For Simi Valley/Moorpark, inventory is also higher by the same 58%, but median and average prices are down 4-5% compared to last year, on sales 2% lower.  The Holiday Season usually restricts new listings, with many waiting for the new year to list.  Both Conejo and Simi/Moorpark maintain a reasonable 2.5 months worth of inventory based on sales.

Let’s explore how inventory has been reacting compared to past years.  The shape of the 2025 curve is normal, comparing more to 2018 and 2019, and that 58% higher inventory has lifted this curve much higher than 2023 and 2024.  Looking at the inset box, the inventory of homes priced below $1 million has substantially increased.

A similar analysis can be said for the inventory in Simi/Moorpark.  Listings in 2024 increased substantially compared to 2023, and that trend continued for 2025.  Inventory growth is taking place across all price categories.

While inventory has been climbing consistently, sales have underwhelming, following the moderate experience of 2023 and 2024.  The pre-COVD sales average of 175 is substantially higher than the past three years.

Looking at that same sales information in a different fashion, Conejo Sales are following very closely to the past two years.

Simi/Moorpark sales experienced a bump two months ago, but overall sales are currently only 2/3 the average pre-COVID sales history.

Simi/Moorpark experience is the same as Conejo, a mirror image of the past two years.

With low sales and growing inventory, lets view the resultant pricing.  For Conejo, the drop in high priced homes is very apparent as the Average and Median prices move closer together.  The annual curves for the past four years are behaving similarly, rising as we proceed into the summer and declining as we head toward year end.

Simi/Moorpark has been acting a little differently, mainly because of a different price mix of homes sold.  However, the big drop in high priced sales is also very apparent, as the average price dropped significantly, with the biggest sales increases taking place in the lowest price tranches.

So what’s on the horizon?  Previously, a lack of inventory has been the biggest factor.  The aforementioned two bills in Washington should help add inventory.  However, the economy is slowing.   I think.  We are all awaiting more information from Washington.  

If this is sounding political, that’s because it is.  Economic Data from official government sources has been on hold.  Many wonder if the news is bad, and that is why publication is being restricted.  You would think if the news were good, the administration would be happy to release it.  

There is a famous political saying: Perception is Reality.  Consumers are concerned.  When they are concerned they stop buying.  When they stop buying the economy backpedals.  

What does that mean for our housing market in particular?  More of the same is now the best we can hope for. 

I am watching news from Washington to see how things develop.  The House was on recess for 6 weeks, and now with the end-of-year holidays, will will officially only be in session for four more days until January.  There will be massive pressure to pass budget bills.  If not, there may be another shutdown at the end of January. 

What will happen with the ACA tax credits?  Who will be the next FED chief?  Will we attack Venezuela?  All real estate is local, but we sure are getting our share of Washington concerns.

I believe our local real estate market should remain stable and stay consistent.  Most homeowners have mortgages that are currently fixed for 30 years and at lower (less than 4%) rates.  Homeowners have a good amount of equity in their homes.  We do not have the housing finance problems that caused a recession in 2008.   People still need to buy, people still need to sell.  People need a place to live, and real estate has proven to be the best investment most people make.  Like any market, it has its ups and downs.  We may be at the beginning of a market adjustment.

Be the trusted source of real estate information.  Make sure your clients know how the market is progressing.  They can’t look up the value of their home in the newspaper.  They may not be listing or buying right now, but your sharing of information will lead them to you when they decide to pull the trigger.

Count your blessings, enjoy your time with family and friends, and have a happy and healthy holiday season.  And be careful out there.

Chuck