As we mentioned in the Big Story, the market is cooling on both the buy and the sell sides. When there are fewer sellers, there are also fewer buyers, because some buyers are selling their homes to move to others in the same market. New listings have declined faster than sales, causing inventory to decline near the all-time low level we experienced last winter. However, the key difference is that fewer buyers are on the market — so, even with low inventory, buyers can still find the home that’s right for them. The low inventory has insulated prices from a major reversal. In fact, Sonoma condo prices reached an all-time high in November. Although prices have contracted, especially single-family homes in Marin, they have maintained price gains over the past 24 months with the exception of San Mateo condos, which are now lower than in November 2020.
Moving forward, prices will likely contract slightly more through the winter, which is typical. Without any signs of interest rates dropping, we’re entering a stage of slower, longer-term growth — but still growth. In the short term, prices may come down a little more, however. Real estate has shown itself to be one of the best investments in recent history and is, on average, the largest store of wealth for an individual or family. Price appreciation will likely move to a more normal growth rate of around 5-6% in the coming years, which makes for a much healthier market than what occurred in 2020 and 2021.
Inventory continues to decline, following seasonal trends
Silicon Valley, along with the rest of the country, has not returned to anywhere near pre-pandemic inventory levels after the buying boom last year. We can compare sales and new listings from 2021 to 2022 to see the effects of fewer homes coming to market. Fewer homes and the rising rate environment have dropped demand. Softening demand has brought the market toward balance despite declining inventory.
Months of Supply Inventory still indicates a sellers’ market for single-family homes
Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes listed on the market to sell at the current rate of sales. The long-term average MSI is around three months in California, which indicates a balanced market. An MSI lower than three indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). MSI has trended higher (from a sellers’ market toward balance) since late spring, but despite the changing market environment, North Bay single-family homes still indicate a sellers’ market, but just barely for Napa and Solano counties. The condo markets in Napa and Sonoma are still in a sellers’ market, while the Marin and Solano markets favor buyers.