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The Local Lowdown: April 2023

The Local Lowdown: April 2023

The Local Lowdown

 
Quick Take:
  • Home prices rose significantly in San Mateo month over month after a nine-month contraction, signaling that low inventory and seasonality are still affecting pricing despite higher mortgage rates.
  • Active listings in Silicon Valley rose slightly in February as fewer listings came to market, but inventory is still low relative to demand.
  • Months of Supply Inventory declined as sales increased and homes sold faster month over month, indicating the market has moved deeper into a sellers’ market.
Note: You can find the charts/graphs for the Local Lowdown at the end of this section.
 

Typical and atypical seasonal trends

This time of year, we usually see both inventory and sales increasing steadily through mid-summer. Inventory is able to grow, even with rising sales, because of the relatively high number of new listings that typically come to market in the first half of the year. However, the number of new listings in January and February hasn’t outpaced sales enough to significantly increase active listings, which is an early sign that inventory will struggle to grow this year. Although we expect sales to be more muted in 2023, demand is already significantly outpacing supply.
 
Silicon Valley real estate has proven to be incredibly resilient, especially considering it’s one of the most expensive markets in the country. Single-family home prices rose across Silicon Valley over the past two years, up 9.5% in San Mateo, 1% in Santa Clara, and 13.5% in Santa Cruz. Condo prices were a little more mixed with prices in San Mateo and Santa Clara up 10.5% and 13.3%, respectively, while condo prices in Santa Cruz declined 6.8%. The next three months will give us a clearer picture of how buyers and sellers are reacting to the current market conditions, but early signs point to more competition over the limited number of listings in Silicon Valley as we enter the spring season.
 

Inventory low relative to demand

Single-family home and condo inventory rose slightly month over month, as new listings outpaced sales, but far fewer listings came to market than is typical this time of year. Higher interest rates have dropped incentives for potential sellers to enter the market, since sellers usually also must buy a new home. Homeowners either bought or refinanced recently, locking in a historically low rate, which means they aren’t selling and fewer listings are coming to market. Moreover, many potential buyers were priced out of the market as interest rates rose; however, interest rates have been higher for enough time that buyers are more comfortable re-entering desirable markets like Silicon Valley. Currently, buyers aren’t facing anything similar to the hypercompetitive 2021 market, but we will likely start to see more competition among buyers in the spring. New listings fell by 39.8% year over year, while sales declined 34.7%. We still expect some inventory growth in the first half of the year, but inventory will likely remain low.
 

Months of Supply Inventory dropped, indicating a sellers’ market

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 in Silicon Valley already indicated a sellers’ market, but dropped lower in February for both single-family homes and condos. The sharp drop in MSI occurred due to more sales and homes selling more quickly.
 

Local Lowdown Data


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