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Home mortgage rates in the U.S. have reportedly spiked to their highest levels since the end of 2023, however, the Federal Reserve decided to leave rates unchanged after its most recent meeting. This interest rate change has not only dampened home sales, but also added instability to the overall housing market transactions.

In California, for example, according to the California Association of Realtors (C.A.R.), seasonally adjusted annualized sales of existing single-family homes in the state totaled 272,410 in May, down 1.1% from the previous month and 6% from the same month last year.The C.A.R. points out that the high interest rates are limiting the growth of home sales in the state, allowing year-to-date home sales to remain relatively flat.

However, while sales have declined rather than increased, home prices have continued to rise: in May, California's median home price exceeded $900,000 for the second consecutive month, reaching a new all-time high and attracting an increasing number of sellers to list their homes for sale. Specifically, California's median home price was $908,040 in May, up 8.7 percent from $835,280 a year ago. Additionally, the average price per square foot for existing single-family homes was $446.

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The increase in home prices varied in different parts of California. The median home price in the San Francisco Bay Area rose 11.9 percent year-over-year, and the Southern California region saw a 10 percent increase. Home prices on the Central Coast, Far North and Central Valley are also trending upward. Seasonal factors and a tight housing supply are expected to continue to drive home prices higher in the coming months.

Jordan Levine, C.A.R.'s chief economist, said, "The continued shortage of homes for sale over the past few months, especially in lower-priced markets, has pushed California's median home price to an all-time high." He further predicts, "With mortgage rates falling back from their peak and increased competition in the market, statewide median home prices will likely have further room to grow by the end of the summer."

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However, unlike the California real estate market, overall U.S. home price growth has slowed slightly. According to real estate brokerage Redfin, while home prices remain at all-time highs, the pace of growth has slowed. The number of listings is expected to increase slowly as the mortgage rate effect fades.

Chen Zhao, Redfin's director of economic research, noted, "We recently learned that inflation continued to cool in May, which could mean that mortgage rates could fall in late summer or early fall." He added, "Falling mortgage rates will prompt more buyers and sellers to re-enter the market, which could either accelerate price increases or cause prices to fall back, depending on which side of the return is stronger." He also pointed to the strong sales performance of higher-priced homes as a factor supporting solid home price growth.

Finally, Redfin's survey shows that buyers of higher-priced homes look for the most important finishes when selecting a home, including dual sinks in bathrooms, center island kitchens and walk-in pantries. The survey also suggests that more than half of buyers of luxury homes may not make an offer on a home if it has outdated kitchen finishes. Therefore, factors such as a home's curb appeal, the condition of the bathroom finishes and the presence of spray-textured ceilings are critical to a home's market acceptance.