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. In fact, new listings were the lowest on record in the Bay Area, and the lack of new listings was the main reason San Francisco inventory declined to a record low in December. Typically, inventory peaks in July or August and declines through December or January. In December, inventory, sales, and new listings dropped across Bay Area markets. 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 50% and sales declined 10%. Year over year, sales and new listings are down 9% and 14%, respectively. Total inventory is down 17% year over year.
As demand slows, buyers are gaining slightly more negotiating power and paying less than asking price on average. The average seller received 95% of list price in January, which grew to 102% by mid-year. From June to December, the average seller received around 99% of list price.
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 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 10 months. Currently, single-family home MSI is below three months of supply (sellers’ market) in every Bay Area county except for single-family homes in Napa, which is more balanced, and condos in Monterey, which now favors buyers. The condo markets are a little more mixed, but mostly balanced.