Let me walk you through what Zillow Research is seeing in the housing market heading into fall. According to their latest data, we're experiencing what they're calling an early winter in home sales activity. Newly pending sales, which are really the best predictor of closings down the road, dropped significantly year over year. Meanwhile, closed sales of existing homes also pulled back compared to last year. The culprit here is pretty straightforward: mortgage rates have climbed to levels we haven't seen since late 2023, and that's putting real pressure on buyer activity.
What's interesting is that home values themselves aren't falling much. According to Zillow's Home Value Index, values have essentially stayed flat over the past year, rising just a small amount. However, the monthly payment on a typical home has gotten considerably more expensive due to those higher rates, even when accounting for a substantial down payment. So buyers are feeling the squeeze not because homes cost less, but because borrowing costs so much more.
The inventory situation is telling us something important about why we're not seeing price crashes. Sellers are being affected by the same economic forces as buyers, since most people who sell are also buying their next home. Both groups are essentially sitting on the sidelines, which means the supply of homes for sale isn't growing in a way that would push values down significantly. We're seeing more homes listed than last year, but that growth is slowing, and inventory remains well below pre-pandemic levels.
The one bright spot in all this is the rental market, which continues to perform well. According to Zillow's Observed Rent Index, typical rents have grown at their fastest pace since earlier this year. This uptick in rent growth has been consistent month after month and is happening across both apartment buildings and single-family rental homes.
What I am seeing locally in the Bay Area and East Bay is that this slowdown is absolutely real for sellers hoping to move quickly, but it's also creating some interesting dynamics. Buyers who do have the financial capacity to weather higher rates are finding less competition, which gives them more negotiating room than they've had in years. For sellers, this reinforces the importance of pricing realistically and making sure your property is in top condition, because those choosy buyers are going to be thorough.
