2025 Year in Review

We as humans are constantly driven by the need to reinvent ourselves, which perhaps explains our preoccupation with time. We frequently create opportunities for new beginnings: the start of a fresh hour, a new day, or the look ahead at a coming week. Every New Year, this urge intensifies, with people seeking out resolutions, new fitness plans, 'Sober January' detoxes, or simply manifesting their yearly goals by writing them all down. This universal desire for self-renewal, the annual reset, the January 1st mindset, is something we all share and is one of the greatest gifts we can give ourselves. 

• Supply Levels
• Interest Rates
• A Case in favor of 50 Year Mortgages
• Jimmy Penetta’s “More Homes on the Market Act”

Supply Levels

Contrary to expectations set in our Q3 2025 Newsletter, the final quarter of the year (Q4 2025) was notably uneventful in terms of inventory.

Following a slow recovery over the summer after Trump's Liberation Day, we did observe a strong increase in supply after Labor Day. Specifically, September 2025 inventory levels showed a significant bump: a 10% increase compared to September 2024, and a 31% increase month-over-month.

The initial surge in the market was brief. October brought significant stock market volatility, fueled by further tariff discussions, especially regarding China. In November, investors shifted away from tech stocks, seemingly repositioning themselves for a "risk-off" environment. Despite this pullback, the S&P 500 finished each month in the green after experiencing a rally.

Uncertainty often breeds inaction, leading people to "hunker down" out of fear of the unknown. Having spent enough time in this industry, I've witnessed the rewards that come from the courage to act. As JFK once stated, "There are risks and costs to action. But they are far less than the long-range risks of comfortable inaction." Those willing to take the leap are often rewarded for their bravery.

The fourth quarter concluded with a 5% drop in new listings compared to Q4 2024.

*MLS data provided | Single Family Homes | Santa Clara County

The 2025 market can be summarized as a "flash in the pan," prices ultimately settling slightly below December 2024 due to market inactivity.

The year started strong, with an "incredible" first half driven by seller optimism and an engaged buyer pool. This led to spiked inventory levels and the Santa Clara County median home values reaching new highs in March, April, and May, peaking at $2,150,000.

However, the second half of the year saw a dramatic shift. Uncertainty led to fewer listings and a drop in median sale prices. Despite this, those who were "brave enough to pull the trigger," particularly on the buy side, found themselves rewarded with less competition, well ahead of what is widely predicted to be an active 2026.

*MLS data provided | Single Family Homes | Santa Clara County

Interest Rates

Mortgage rates, specifically the 30-year fixed, ended 2025 averaging around 6.15%. This level is a notable pullback from the peak highs seen in 2024 and mid-2025, during which rates often traded in the upper-6% range. As I am writing this newsletter we are seeing some of our clients qualify for 30 year fixed rate loans in the high 5% range with no points. This has been a catalyst for the first few weeks of 2026 as mortgage applications spiked 18% YoY. 

The latter half of 2025 saw three Federal Reserve rate cuts, totaling 75 basis points, which brought the federal funds rate down to the 3.50% - 3.75% range at year-end. These actions, which guide short-term interest rates and market expectations, contributed to the decline in mortgage rates; however, as we’ve discussed before mortgage rates do not move in lockstep with the Fed’s policy rate.

Mortgage rates are more directly linked to long-term market rates, particularly 10-Year Treasury yields, and investor demand for mortgage-backed securities (MBS). Despite the Fed's cuts, several factors kept 30-year fixed mortgage rates anchored around 6%.

In late January 2026, the 10-year yield climbed toward 4.2%, reflecting investor pricing based on expectations for growth, inflation, and liquidity. Although headline inflation has been moderating significantly and beat expectations in December, it remains above the Fed's 2 percent target, influencing Fed policy and the term premium investors demand on long bonds. This likely led to the Jeremone Powell’s recent decision on January 28th, to hold rates steady. 

Something to note is the significant spread between Treasury yields and mortgage rates. This typically reflects credit risks and liquidity concerns as the spread widens during periods of volatility. The spread has not fully compressed, even as recent policy rates eased. The U.S. debt exceeding $38 trillion is also a factor markets monitor, as heavy Treasury issuance can exert upward pressure on longer-term yields if investor demand lags behind supply.

As we turn to the new year, we don’t expect a significant change in mortgage rates. However, we will be watching the transition of the Federal Monetary Policy leadership as President Trump recently announced his Fed Chair replacement, Kevin Warsh. Warsh served as a member of the Federal Reserve Board of Governors from 2006 to 2011. He wasn’t the markets favorite for the position as the many anticipated Trump to select a more “dovish,” figure. 

A Case in favor of 50 Year Mortgages

The idea of extending mortgage terms to 50 years has reentered the housing conversation as affordability pressures continue to shape buyer behavior. The announcement received mixed reviews. Longer loans mean lower monthly payments, which can help more households qualify for homeownership when prices and interest rates remain elevated. However, a longer term means more interest would be paid during the life cycle of the loan.

This loan structure is not going to be of interest to every borrower, and won’t be effective in every marketplace. However, as someone who has watched the Bay Area real estate market create substantial fortunes for many families, it is important to advocate for new lending products that convert renters to homeowners sooner.

To start, most buyers do not hold their original mortgage for anything close to its stated term. While the standard loan is written for 30 years, the typical mortgage is refinanced, paid off, or replaced within roughly five to seven years, according to Freddie Mac. Homeownership is driven by life changes rather than amortization schedules. Job relocations, growing families, divorces, and retirement frequently lead to moves or refinances long before a loan reaches maturity. When interest rates fall, refinancing waves further shorten the life of the average mortgage. Even when homeowners stay in place, many reset their loans through cash out refinances, effectively starting the clock over.

This reality matters because a fifty year mortgage is often discussed as a long term affordability solution, when in practice it would function primarily as a short term payment management tool. Extending the amortization period does reduce monthly payments by 10-20% by stretching the principal repayment over more years. This can be the key to opening the door to ownership for buyers on the qualification margin, especially in high-cost areas like the Bay Area.

I put together a breakdown to illustrate how the benefits of home appreciation and equity building can often outweigh the costs associated with increased interest expense and slower principal reduction in the short term.

• Payment Savings: The 50-year term reduces the monthly payment by $833.33 compared to the 30-year term.
• Total Financial Impact (Over 6 Years): Assuming the average holding period of 6 years, the 50-year loan results in a $71,256.96 decrease in principal reduction and a $12,090.53 increase in total interest paid. The net difference is a short-term loss of $83,347.49 in equity/extra interest over the six-year period.

Offsetting the Costs with Appreciation

The 50-year amortization loan becomes highly advantageous when this short-term financial difference is offset by the home's anticipated appreciation. For instance, given the Bay Area's historical single-family home appreciation rate of approximately 6%, the $1.3 million home in this example would be worth $1,378,000 by the end of year one.

By opting for a 50-year amortization, we can help more buyers meet debt-to-income requirements, granting them access to the immediate benefits of building equity through appreciation as well as the annual tax deduction benefits. If a buyer's income increases after the purchase, they retain flexibility: they can make annual principal-only payments or refinance into a shorter 30- or 15-year product to accelerate their principal reduction.

Minimizing principal reduction does put pressure on appreciation as the main driver of wealth. Price stagnation or decline may leave homeowners with limited equity, increasing vulnerability during downturns and making moving difficult without market growth. This additional lending product does not solve our affordability problem and it does not fix our supply hurdles. It is not for everyone but with the average first time home owner in California reaching 48 years old, and many economists emphasizing concerns around de-dollarization and inflating asset prices. I want to see more products that get our first time homebuyers into houses and out of the rental market.

Jimmy Penetta’s “More Homes on the Market Act”

One of the quieter but most consequential forces shaping housing supply today is Internal Revenue Code Section 121. Originally designed to protect homeowners from excessive taxation, Section 121 allows individuals to exclude up to $250,000 in capital gains, or $500,000 for married couples, when selling a primary residence, provided certain occupancy requirements are met. While well intentioned, this provision has increasingly distorted homeowner behavior in ways that constrain inventory and slow natural market turnover.

In high cost regions, particularly across coastal and job dense metros, home values have appreciated far beyond the Section 121 exclusion limits. Long term owners now face significant tax exposure if they sell, especially those who purchased decades ago at modest prices. The result is a strong incentive to stay put, even when housing no longer fits lifestyle, household size, or location needs. This lock in effect reduces mobility, limits downsizing, and keeps larger homes occupied by smaller households, all while younger families struggle to find available inventory.

These incentives ripple through the broader market. Fewer listings mean tighter supply, increased competition, and upward pressure on prices. Housing stock that might otherwise recycle naturally remains frozen, not because demand is absent, but because tax policy penalizes movement. In practice, Section 121 has become less a homeowner protection and more a barrier to healthy housing circulation.

Recognizing this unintended consequence, Jimmy Panetta has introduced the More Homes on the Market Act. The proposal seeks to modernize Section 121 by adjusting the capital gains exclusion to reflect today’s housing realities. By increasing the exclusion thresholds and indexing them to inflation, the bill aims to reduce the tax friction associated with selling a primary residence.

The implications are meaningful. Lowering the tax burden on long term owners creates space for voluntary turnover. Empty nesters can downsize without punitive consequences. Retirees can relocate closer to family or care. Housing stock re enters the market organically, without subsidies or mandates. Supply improves not through new construction alone, but by unlocking existing homes already embedded in established neighborhoods.

Housing challenges rarely stem from a single cause, and no policy change is a silver bullet. But reforming Section 121 addresses a structural disincentive that has quietly tightened supply for years. The More Homes on the Market Act represents a measured, market aligned approach that acknowledges how tax policy shapes real human decisions, and how those decisions ultimately shape the availability of homes.

We are excited for 2026 as it is already off to a great start. If you are considering making a move or know someone who is considering a move, give us a call. We would love to be a resource as you lay out your options. 

Thank you for reading.