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The Local Lowdown: April 2023

The Local Lowdown: April 2023

The Local Lowdown

 

Quick Take:
  • Home prices are stabilizing after months of contraction, signaling that low inventory and seasonality are still affecting pricing despite higher mortgage rates.
  • Active listings in the Bay Area rose slightly in February, but fewer listings are coming to market, keeping inventory near historic lows.
  • 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 for most of the Bay Area.
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 in much of the Greater Bay Area. Even with higher mortgage rates, the Bay Area is experiencing high demand. People simply want to live in the Bay Area. With the median prices of single-family homes in six of the Bay Area counties above $1 million, and five counties below $1 million, the mix of higher- and lower-priced homes translates to more market participants.
 
Bay Area real estate has proven to be largely resilient, considering the area has a number of the most expensive markets in the country. Single-family home prices have declined across the Bay Area year over year, but looking back two or even three years, prices have increased across most of the Bay Area. 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 the Bay Area as we enter the spring season.
 

Inventory Near Record Lows

Single-family home 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 the Bay Area. Currently, buyers aren’t facing anything similar to the hypercompetitive 2021 market, but we will likely start to see more competition in the spring. New listings fell by 41.9% year over year, while sales declined 34.9%. San Francisco new listings dropped most significantly, down 60% from last year. We still expect some inventory growth in the first half of 2023, but inventory will likely remain low.
 

Months Of Supply Inventory Dropped, Indicating Most Of The Bay Area Favors Sellers

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 most of the Bay Area already indicated a sellers’ market, but it dropped lower in February. Only a handful of markets don’t favor sellers. Currently, Napa MSIs for single-family homes and condos and San Francisco condo MSI imply a buyers’ market. San Francisco single-family homes and Santa Cruz condo MSIs indicate a more balanced market. The sharp drop in MSI occurred due to more sales and homes selling more quickly.
 

Local Lowdown Data

 

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