Housing Market Shifts: Mortgage Rates Drop While Most Regional Markets Struggle
Mortgage Rates Fall to Three-Month Low, But National Sales Continue to Decline
The real estate market is experiencing contradictory signals as mortgage rates have reached their lowest point in nearly three months, triggering a 9% week-over-week surge in mortgage-purchase applications. Despite this positive development, pending home sales across the United States dropped 6.4% compared to the same period last year during the four weeks ending March 2, representing the second-steepest decline since November 2023.
This paradoxical situation reveals the complex dynamics currently at play in the housing market. The daily average 30-year fixed mortgage rate has decreased to 6.7%, providing potential relief for homebuyers. However, this rate reduction hasn't been enough to overcome other significant market challenges. The median U.S. home sale price has increased by 3.2% year-over-year, and the typical homebuyer's monthly housing payment sits just $26 below its all-time high, creating substantial affordability hurdles for many prospective buyers.
Economic uncertainty continues to weigh heavily on consumer confidence, with concerns about potential tariffs, slowing economic growth, and ongoing corporate layoffs making many potential homebuyers hesitant to commit to such a significant financial decision.
Southern California Emerges as a Real Estate Bright Spot
While most of the country experiences declining sales, Southern California has emerged as a notable exception to this trend. The region is demonstrating remarkable resilience, with pending sales increasing in several major metropolitan areas. Los Angeles leads this positive movement with an impressive 8.5% year-over-year increase in pending sales, the highest among all major U.S. metros. Other California cities showing growth include Anaheim (6.3%), Riverside (1.3%), and Sacramento (0.4%).
This regional divergence extends beyond sales figures to new property listings as well. California is home to four of the five metropolitan areas experiencing the largest increases in new listings. Phoenix leads with a 27.1% increase, followed closely by Sacramento (27%), Anaheim (20.1%), Los Angeles (20.1%), and San Diego (17.5%).
The surge in Los Angeles real estate activity comes in the aftermath of devastating January wildfires that destroyed thousands of homes. This tragic event has created a complex market dynamic where displaced residents are purchasing new homes, buyers who had temporarily paused their search during the fires are re-entering the market, and homeowners are listing properties to meet the increased demand.
Market Strength and Insurance Considerations in Post-Wildfire Los Angeles
"Prices are up, homes are selling rapidly and overall, the housing market is strong," notes Sam Najarian, a Redfin Premier agent in Los Angeles. "That was true before the wildfires, and it's true now. The fires have made it tough to get insurance and they're causing buyers to look away from the hills, but the spring homebuying season is definitely underway in the rest of Los Angeles. Some listings are getting lots of offers, and the best ones are going for $200,000 or $300,000 over asking price."
The impact of recent wildfires extends beyond immediate housing needs to insurance considerations. Homebuyers in areas deemed high-risk due to proximity to fire zones may face significant challenges in securing affordable homeowners insurance. This reality has shifted search patterns, with some buyers moving their focus from heavily impacted areas like Altadena to neighboring cities such as Pasadena, where insurance regulations are less stringent.
These insurance considerations represent an emerging factor in homebuyer decision-making processes, potentially reshaping neighborhood preferences and property valuations in vulnerable regions.
Key Market Indicators and Regional Variations
The current housing market presents a mixed picture when examining various indicators of homebuying demand and activity. The Redfin Homebuyer Demand Index has increased 3% from a month earlier but remains down 3% year-over-year. Touring activity has risen 25% from the start of the year, comparable to the 24% increase observed at this time last year.
Google searches for "home for sale" have surged over 20% from a month earlier but remain unchanged compared to the previous year, suggesting stable underlying interest despite economic challenges.
The national median sale price stands at $379,350, representing a 3.2% year-over-year increase—the smallest since September. The median asking price has risen more significantly at 6.4%, reaching $417,250. Active listings have increased by 9.8%, the smallest annual increase in a year, indicating a gradual normalization of inventory levels.
Regional variations in median sale prices show substantial differences across metropolitan areas. Milwaukee leads with a remarkable 16.2% year-over-year increase, followed by Nassau County, NY (12%), Cleveland (10.7%), Pittsburgh (9.4%), and Anaheim, CA (9.3%). Conversely, seven metros experienced price declines, with Austin, TX showing the largest decrease at -4%, followed by Tampa, FL and Atlanta (both -1.3%).
The Outlook for Spring and Summer Real Estate Markets
As we move deeper into the traditional spring homebuying season, several factors will likely influence market performance. The recent decrease in mortgage rates could continue to bring prospective buyers back to the market, particularly if rates stabilize or decline further. However, affordability challenges remain significant, with the median monthly mortgage payment at $2,772 (at a 6.76% mortgage rate), representing a 5.3% year-over-year increase and sitting just $26 below the all-time high.
The months of supply currently stands at 4.4, an increase of 0.6 percentage points year-over-year. This figure approaches what is traditionally considered a balanced market (4-5 months of supply), suggesting a gradual shift from the extreme seller's market conditions experienced in recent years.
The share of homes leaving the market within two weeks has decreased to 33.4% from 38% a year earlier, while the median days on market has increased by 8 days to 55—approaching the longest span since March 2020. These metrics indicate a moderating market with less frenetic buyer activity, potentially offering more negotiating power to those entering the market.
Market Insights
Why are Southern California home sales increasing while the rest of the country experiences declines?
Southern California's unique market conditions stem from several factors, including the aftermath of January's wildfires creating immediate housing needs, historically strong demand in the region, and local economic resilience. Additionally, California buyers may be more accustomed to higher price points and therefore less sensitive to current affordability challenges.
How might falling mortgage rates impact the market through the remainder of 2025?
If mortgage rates continue their downward trend, we could see increased buyer activity nationwide, potentially reversing the current sales decline. However, the impact may be uneven, as affordability challenges from elevated home prices will continue to affect entry-level buyers most significantly. Markets with more modest price appreciation may see stronger responses to rate decreases than those with substantial price gains.
What should buyers know about homeowners insurance in today's market?
Insurance considerations have become increasingly important in homebuying decisions, particularly in areas vulnerable to natural disasters. Prospective buyers should investigate insurance availability and costs early in their search process, as these factors can significantly impact overall affordability. In some high-risk areas, insurance costs may effectively price out certain buyers or redirect them to different neighborhoods with more favorable insurance conditions.
Is the current market better for buyers or sellers?
The market is gradually shifting toward more balanced conditions after several years of extreme seller advantage. While sellers in most regions still benefit from price appreciation and relatively quick sales, buyers have gained some negotiating leverage with increased inventory and longer market times. The ideal approach varies by location—buyers in declining markets may find increasing opportunities, while those in hot markets like Southern California still face competitive conditions.
