Bay Area Real Estate Market Dynamics and Mortgage Data

1/21/2026

It’s early in the cycle, but useful to keep an eye on the data and how it changes.  Whether you are looking to buy or sell, the best way to get the market to work for you and have an edge is to know the underlying dynamics. The current market stats are showing signs of growth. In this letter:

·        YTD Statistics

·        Market Dynamics of Active, Pending and Sold Homes figures for Marin and SF

·        Dissecting the 30-Year Fixed Mortgage Rate

2026 YTD Data

Mortgage and Interest Rate Data

·       30-Year Mortgage Average is at its lowest level since September 15, 2022

·       The Mortgage Spread (30-Year Mortgage rate – 10-Year Treasury yield) is -5.7% YTD

·       10-Year Treasury yield is slightly higher for the year, yet the TIPS yield is -14% YTD

·       The TIPS Spread, AKA 10-Year Breakeven Inflation Rate rose 3.6% YTD

·       Mortgage Applications are +16% YTD and over 50% higher vs same time last year

·       30-day Treasury Market volatility is at its lowest levels since October 1, 2021

I will discuss the Mortgage Spread and its components in more detail below.  I follow the TIPS Spread (10-Year Breakeven Inflation Rate) because it implies what market participants expect inflation to be in the next 10 years, on average. I find this the best way to gauge the direction of inflation. As I described in my last letter, the MOVE index uses an options-pricing model based on a weighted average of option probabilities to reflect collective expectations for future volatility in the fixed income market. I watch this because volatility in the Treasury market can result in volatility in the Mortgage market. Once an options trader, always an options trader….

SF and Marin County Real Estate Market Dynamics

·       Inventory is lower in the SF and Marin County markets vs same time last year

·       The pace of sales is higher in Marin YTD, with pending (not yet closed) slightly lower

·       SF sales YTD have cooled compared to last year, but Dec 2025 was a banner month for SF (See my last letter)

·       Days of Inventory Pending stands at 106 in SF and 112 in Marin.  Both lower vs same time last year.  See below.

There are many important data points to follow in understanding a specific real estate market, and how to position yourself as a buyer or seller. The relationship between active listings, sales and pending sales helps understand the velocity of the market.  Days of Inventory Pending is a ratio I use to see how many days it would take for the current inventory to be sold based on the number of homes currently under contract. This information over time helps understand the supply and demand forces currently in the market. A market with low inventory and increasing homes pending sale favors a home seller.  A buyer must be aware of this because there are likely going to be multiple offers on the home they want to purchase, and they will need to bid accordingly to be competitive and get the home they want. 

The Mortgage Spread

I promise not to get too windy here and keep it brief.  Per Fannie Mae:

“The mortgage rate offered to borrowers is determined by adding a spread to the benchmark 10-year Treasury note. The mortgage spread can be broken into two major components: the primary-secondary spread, which represents industry origination costs such as servicing fees, guaranty fees, and other lender costs and profits; and the secondary spread, which represents the additional risk that investors take on when investing in an MBS relative to investing in a 10-year Treasury.”

Here’s the math using today’s numbers and a few assumptions (*):

Ok, so we know where the 10-Year Treasury interest rate comes from. From there we add:

-     The Primary-Secondary Spread: This is the basic cost behind the creation of the mortgage by the lender, plus a little extra juice for their efforts.  This portion of the spread does not fluctuate too much.

-       Secondary Spread: This is the portion of the spread that quantifies investor’s risk appetite.  Investors will demand a higher risk premium over the 10-Year Treasury in volatile, uncertain markets resulting in a bigger spread and higher mortgage rates.

The Federal Reserve adjusts the federal funds rate, the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight, to affect long term monetary policy.  The Fed may lower interest rates after their next meeting, but that does not mean the mortgage rates will go lower. What I hope to get across here is that inflation, lenders, the Treasury market and investors in mortgage securities have more influence of mortgage rates than the Federal Reserve.  Unless they start buying mortgage backed securities again.  But that would only be a positive for the market. 

Thank you for taking the time to read this.  

Gratefully,

Gene

Whatever you do, always give 100%. Unless you're donating blood.

- Bill Murray.

Gene J Koziarz

Compass

DRE# 02247872  REALTOR®

M: 415.599.9209

[email protected]

genekoziarz.com