The Local Lowdown: February 2023

Michelle Kim | February 1, 2023

The Local Lowdown

Quick Take:

Although prices have contracted significantly, the East Bay housing market is entering 2023 as a sellers’ market, and we expect the market to remain favorable to sellers in the first half of the year.
Home prices contracted into December 2022, which helped position prices to rise in the first half of 2023, as buyers and sellers adjust to higher mortgage rates.
The housing market from 2020 to 2022 was an outlier, so it is adjusting back to more typical seasonal trends in 2023.

Note: You can find the charts/graphs for the Local Lowdown at the end of this section.

New Year, Old Normal

As we mentioned in the Big Story, the market has cooled for both buyers and sellers, largely because of higher interest rates. As we enter the new year, the market feels familiar — but from the era before 2020. Demand in the East Bay is evergreen, so we aren’t worried about matching buyers and sellers. That said, sellers likely won’t be getting multiple offers the second the home hits the market again anytime soon. To make a long story short, there is definitely less stress on the buying side of the market. Prices will most likely increase in 2023, but at a more modest rate of around 5-6%, which makes for a much healthier market than the volatile price movements that occurred over the past three years. Single-family home prices contracted in the second half of 2022, landing near 2020 prices in Alameda and Contra Costa, while condo prices have maintained some of their price gains. When we look back further to Q4 2019, single-family home prices have increased 27% in Alameda and Contra Costa, and condo prices have risen 10% in Alameda and 17% in Contra Costa. Without any signs of interest rates dropping, we’re entering a stage of slower, longer-term growth.

More New Listings Should Come to the Market in the First Quarter

When we look at single-family home inventory levels for 2021 and 2022 side by side, the stark difference is immediately apparent. The 2021 market was defined by extremely high demand given the number of new listings, which kept inventory low throughout the year. In 2022, however, demand softened and the new listings far outpaced sales, allowing much-needed inventory to grow at a higher rate than the year before. In the second half of the year, fewer homes came to market and rising mortgage rates dropped demand, but supply fell faster, although inventory at the end of 2022 was higher than the all-time low in December 2021. The condo market had a simpler story in that there were fewer new listings without a proportional decline in sales, so inventory remained low, even reaching an all-time low in December 2022. This year, we expect the housing market to look a lot more like 2022 than 2021.

Months of Supply Inventory Implies 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 has trended higher since spring 2022 but leveled out near two months of supply before reversing, indicating the East Bay is still in a sellers’ market. Despite the changing economic environment, we are comfortable saying that the market will still favor sellers for at least the first quarter of 2023.