Home Values Continue to Climb. Will It Last?

Home values in San Luis Obispo County reached another all-time high in June.

The three-month rolling average sales price hit $1,090,431, the highest level on record. For property owners, that is obviously good news. Values remain strong, buyers are still active, and well-positioned homes are continuing to sell.

But the more important question is this:

Will it last?

The answer depends less on the current price number and more on what is happening underneath the market.

Prices Are Being Supported by Limited Inventory

Right now, home values are being supported by a lack of available inventory.

There are still not enough homes for sale to give buyers a lot of choices. When buyers have fewer options, well-presented and properly priced homes tend to hold their value better. That is one of the main reasons prices have remained strong even with higher interest rates.

But low inventory does not automatically mean overwhelming buyer demand.

That is the part many people miss.

Inventory can be low for two very different reasons. It can be low because there are a lot of buyers competing for too few homes. It can also be low because fewer property owners are choosing to sell.

That second explanation is a major part of what we are seeing now.

The graph below shows the number of active listings in San Luis Obispo County and helps explain why inventory remains constrained.

Fewer Owners Are Choosing to Sell

Since the pandemic, many homeowners have stayed in place because they are locked into much lower mortgage rates than they could get today.

For many owners, selling would mean giving up a 2.5%, 3%, or 4% mortgage and replacing it with a much higher-rate loan. That has kept a lot of potential sellers on the sidelines.

As a result, fewer homes are coming on the market.

At the same time, higher interest rates have also reduced the number of active buyers. Some buyers have been priced out. Others are waiting. Others are still looking, but with less purchasing power than they had a few years ago.

So the market is not simply being driven by huge buyer demand.

It is being held up by a shortage of available homes.

Why That Matters If Interest Rates Fall

This is where the next phase of the market gets interesting.

The common assumption is that if interest rates fall, home prices will automatically rise because more buyers will enter the market.

That could happen.

But there is another possibility that does not get talked about enough.

If rates fall, more homeowners may finally decide to sell. Owners who have been waiting for a more favorable rate environment may list their homes. Move-up sellers may come back. Downsizers may decide the numbers finally make sense. Owners who postponed a sale over the past few years may decide it is time.

If that happens, the number of homes for sale could increase.

That is not automatically bad. More inventory can be healthy for the market. But prices only continue rising if buyer demand increases enough to absorb that new supply.

If the number of homes for sale rises faster than the number of qualified buyers, inventory levels could move higher. And if inventory rises meaningfully, that would put downward give me al f the bog seatilpressure on pricing.

In other words, lower interest rates do not guarantee higher home values.

They could bring more buyers.

They could also bring more sellers.

The direction of the market will depend on which side increases faster.

What This Means for Sellers

For now, San Luis Obispo County home values remain strong because inventory is still constrained.

That creates opportunity for sellers, especially those with homes that are well-prepared, well-priced, and presented properly to the market.

But sellers should not assume that today’s conditions will last forever.

If more owners decide to sell later this year or next year, buyers may have more choices. More competition means pricing, presentation, marketing, and negotiation strategy become even more important.

The best market is not always the market with the highest headline price.

The best market is the one where your home can stand out, attract serious buyers, and sell with leverage.

Bottom Line

Home values in San Luis Obispo County are at record highs, but the reason matters.

Prices are being supported by limited supply, not simply by unlimited buyer demand. If inventory remains tight, values may continue to hold. But if lower interest rates bring a wave of new listings without enough new buyers to match them, the market could shift.

That is the key question for the second half of the year:

If rates come down, will they bring more buyers, more sellers, or both?