In the North Bay, low inventory has more than offset the downward price pressure from higher mortgage rates, and prices generally haven’t experienced larger price drops from higher mortgage rates. Month over month, in January, the median single-family home price rose 36% in Napa, 5% in Solano, and 2% in Sonoma, while Marin prices declined 3%. However, year over year, prices were up 7% in Marin, 51% in Napa, 4% in Sonoma, and 6% in Solano. The median single-family home price in Napa reached an all-time high. However, we expect this to be a statistical outlier and to correct next month. We expect prices in the rest of the North Bay to remain slightly below peak in the winter months, but as interest rates decline, prices will almost certainly reach new highs in the first half of 2024 with the exception of Marin, where prices are far below their peak.
High mortgage rates soften both supply and demand, so ideally, as rates fall, far more sellers will come to the market. Rising demand can only do so much for the market if there isn’t supply to meet it. Unlike 2023 inventory, 2024 inventory has a much better chance of following more typical seasonal patterns.
New listings rose 75% month over month, which drove more listings coming under contract
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, sales and new listings peaked in May, while inventory peaked in September. New listings have been exceptionally low, so the little inventory growth in 2023 was driven by softening demand. In January, single-family home and condo inventory and sales dropped, but more new listings came to the market, which drove a higher number of homes coming under contract. With the current low inventory levels, the number of new listings coming to market is a significant predictor of sales. New listings rose 75% month over month, and homes coming under contract increased 23%. Year over year, inventory is down 6%; however, sales and new listings are up 6% and 5%, respectively.
Months of Supply Inventory in January 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 North Bay market tends to favor sellers, which is reflected in its low MSI. MSI fell sharply in the first quarter of 2023 before gently trending higher from May to November. MSI never quite hit the three-month threshold and declined sharply in December. In January, the North Bay market favored sellers. The only exceptions are single-family homes in Napa, which favored buyers, and Marin condos, which were more balanced between buyers and sellers.
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. January tends to have the lowest average sale price (SP) to list price (LP), and the summer months tend to have the highest SP/LP. The January 2024 SP/LP was 1% higher than last year, meaning we expect sellers overall to receive a slightly higher percentage of the list price throughout all of 2024 than they did in 2023.
