Inventory Hits Two-Year Low
Single-family home inventory rose slightly month over month, as new listings outpaced sales. Condo inventory fell further as sales increased and new listings decreased. 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 San Francisco. Currently, buyers aren’t facing anything similar to the hypercompetitive 2021 market, but we will likely start to see a more competitive market in the spring. New listings fell by 60.9% year over year, while sales declined 45.8%. We still expect some inventory growth in the first half of 2023, but inventory will likely remain low.
Months Of Supply Inventory Implies A Balanced Market For Single-Family Homes And A Buyers’ Market For Condos
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 dropped in February for both single-family homes and condos, indicating the market is starting to get more competitive. The sharp drop in MSI occurred due to homes selling more quickly and fewer new listings coming to market. Currently, MSI implies a balanced market for single-family homes and a buyers’ market for condos.
