In the Greater Bay Area, 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, median single-family home prices were only slightly below their all-time highs. Even Marin and San Francisco prices, which were extremely far from previous peaks, have risen dramatically in Q1 2024. Condo prices have been less volatile than those of single-family homes, moving more horizontally over the past two years. We expect prices in the Bay Area to remain slightly below peak until the early summer, but prices will almost certainly reach new highs in the second quarter of 2024 in the North and East Bay. 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. New listings have been exceptionally low, so the little inventory growth in 2023 was driven by softening demand. In December 2024, inventory and sales dropped. However, more new listings came to the market in 2024, which has driven the significant increase in sales in Q1 2024. The market is already looking healthier, and we expect more new listings and sales in Q2 2024.
With the current low inventory levels, the number of new listings coming to market is a significant predictor of sales. New listings rose month over month, as did sales, increasing significantly in the Bay Area. 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 in March 2024 indicated 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). The Bay Area markets tend to favor sellers, which is reflected in their low MSIs. San Francisco MSI is notable for its variability over the past year, oscillating from buyers’ to sellers’ markets twice over the course of 12 months. Currently, single-family home MSI is below three months of supply (a sellers’ market) in every Bay Area county, except for single-family homes in Napa and condos in Monterey and San Francisco, which are now 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 higher than last year across the Bay Area, meaning we expect sellers overall to receive a higher percentage of the list price throughout all of 2024 than they did in 2023.
