The Local Lowdown: January 2024

Michelle Kim | February 1, 2024

The Local Lowdown

Quick Take:

Year over year, the median single-family home and condo prices in Silicon Valley stayed in line with the six-month horizontal price trend. We expect that trend to continue until interest rates drop further and more sellers come to the market.
Active listings in Silicon Valley fell 17% month over month, which is typical this time of year when new listings tend to decline significantly. As mortgage rates drop, we will likely see more new listings in the first quarter, which should help alleviate some excess demand.
Months of Supply Inventory declined significantly in December, as sales outpaced new listings, indicating the market firmly favors sellers as we enter the new year.

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

Median single-family home prices close 2023 up year over year for San Mateo and Santa Clara, but Santa Cruz prices declined

In Silicon Valley, home prices haven’t been largely affected by rising mortgage rates after the initial period of price correction from April 2022 to January 2023. Prices rose in the first quarter of 2023 but then trended horizontally for the rest of the year. Year over year, in December, the median single-family home prices were up 6% in San Mateo and 17% in Santa Clara, but declined 10% in Santa Cruz. The median single-family home price in Santa Cruz was notable in December due to the 19% drop month over month. However, price per square foot was more in line with expectations, just slightly under the two-year average. Year over year, condo prices were also mixed, with a 2% decline in San Mateo, a 7% increase in Santa Clara, and prices remaining the same as last year in Santa Cruz. We expect prices to remain fairly stable in the winter months, but as interest rates decline and more sellers come to the market, prices will almost certainly rise in the first half of 2024. More homes must come to the market in the spring and summer to get anything close to a healthy market.

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.

Inventory, sales, and new listings declined month over month

Single-family home and condo inventory barely increased at all last year, which is far from the seasonal norm. In 2023, inventory didn’t have anything resembling the typical sine wave, since far fewer sellers came to the market, especially in the first half of the year, and the low inventory and fewer new listings slowed the market considerably. New listings have been exceptionally low, so the little inventory growth last year was driven by softening demand. Typically, inventory peaks in July or August and declines through December or January. However, in 2023, inventory peaked in October, further highlighting the atypical supply trend. In November and December, inventory, sales, and new listings dropped, which is normal this time of year. With the current low inventory levels, the number of new listings coming to market is a significant predictor of sales. Month over month, new listings fell 53% and sales declined 9%. Total inventory is down 17% year over year.

As demand slows, buyers are gaining more negotiating power and paying less than asking price on average. In July 2023, the average seller received 102% of list price, compared to 98% of list in December. However, on average, buyers paid 4% more in December 2023 than December 2022. Inventory will almost certainly remain historically low for the next few months, and buyer competition will ramp up meaningfully in the spring, which will drive price appreciation.

Months of Supply Inventory in December 2023 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 Silicon Valley 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. In December, MSI declined sharply. Currently, the Silicon Valley housing market strongly favors sellers.