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 December, single-family home inventory, sales, and new listings dropped, which is normal this time of year. Condos sales actually rose slightly in December, which isn’t abnormal for the condo market 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 46% and sales declined 9%. Year over year, sales and new listings are down 16% and 5%, respectively. Total inventory is down 7% year over year.
As demand slows, buyers are gaining more negotiating power and paying less than asking price on average. In May 2023, the average seller received 101% of list price, compared to 94% of list in December. 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 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. Broadly, the North Bay market favors sellers. The only exceptions are single-family homes in Napa, which are more balanced between buyers and sellers.
