In the North Bay, low inventory and high demand have more than offset the downward price pressure from higher mortgage rates, and prices generally haven’t experienced larger drops due to higher mortgage rates. Month over month, in March, the median single-family home price rose most notably in Marin, up 26%. Even with that huge price gain, it’s still 10% below the April 2022 all-time high. Year over year, prices increased across North Bay markets, up 25% in Marin, 1% in Napa, 0.2% in Solano, and 6% in Sonoma. The median single-family home prices in the North Bay are fairly close to their all-time highs, especially in Sonoma. Prices in Solano and Sonoma could easily reach new highs in Q2 2024; Marin and Napa could do the same, but we view that as less likely at this time. Low, but rising inventory is only increasing prices as buyers are better able to find the best match.
High mortgage rates soften both supply and demand, but at this point rates have been above 6% for 16 months, and rate cuts will likely occur sometime this year. Potential buyers have had longer to save for a down payment and will have the opportunity to refinance in the next 12-24 months, which makes current rates less of a limiting factor. However, high demand can only do so much for the market if there isn’t supply to meet it.
Single-family home and condo inventory, sales, and new listings increased month over month
Since the start of 2023, single-family home inventory has followed fairly typical seasonal trends, but at significantly depressed levels. Low inventory and fewer new listings have slowed the market considerably. Typically, inventory peaks in July or August and declines through December or January, but the lack of new listings prevented meaningful inventory growth. Last year, new listings peaked in May, sales peaked in June, and inventory peaked in September. New listings have been exceptionally low, so the little inventory growth in 2023 was driven by softening demand. In January 2024, single-family home and condo inventory and sales dropped, but more new listings came to the market, which drove a higher number of sales in February. Sales continued to climb higher in March, along with new listings.
With the current low inventory levels, the number of new listings coming to market is a significant predictor of sales. New listings rose 35% month over month, and sales followed suit, increasing 35% as well. Year over year, inventory is up 4%; however, sales are still down 10%. The next three months will be critical to our understanding of the market. More supply will mean a healthier market and a more normal housing market in 2024.
Months of Supply Inventory fell in March 2024, 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 trended higher in the second half of 2023, hovering between a balanced market and a sellers market. In January and February 2024, the North Bay market MSI continued that trend, but in March, MSI fell significantly, indicating the housing market now favors sellers. The only exceptions are single-family homes in Napa, which were balanced.
We can also use percent of list price received as another indicator for supply and demand. Typically, in a calendar year, sellers receive the lowest percentage of list price during the winter months, when demand is lowest. Winter months tend to have the lowest average sale price (SP) to list price (LP), and the summer months tend to have the highest SP/LP. In Q1 2024, SP/LP was 2% higher than last year, meaning we expect sellers overall to receive a higher percentage of the list price throughout all of 2024 than they did in 2023.
