The Local Lowdown: January 2025

Michelle Kim | January 31, 2025

The Local Lowdown

Quick Take:

Month over month, median prices fell across most of the Bay Area in December. We expect prices to contract in January 2025 before rising in the spring and summer months.
Total inventory in the Bay Area declined significantly, as sales far outpaced new listings. We expect inventory to decline and the overall market to slow in the first quarter of 2025.
Months of Supply Inventory declined in Q4 and currently indicates a sellers’ market, with the exception of Napa, which is more balanced.

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

Median prices rose in 2024 across most of the Bay Area

In the Bay Area, home prices haven’t been largely affected by rising mortgage rates after the initial period of price correction from April 2022 to January 2023. Low, but growing inventory and high demand have more than offset the downward price pressure from higher mortgage rates. Year over year, prices increased most significantly for single-family homes in the East Bay, Silicon Valley, and San Francisco. We expect some minor price contraction in January 2025 before rising into the spring and summer months.

High mortgage rates soften both supply and demand, but homebuyers and sellers seemed to tolerate rates near 6% much more than around 7%. Mortgage rates fell significantly from May through September, but rose significantly in the fourth quarter of 2024. Now, rates are far closer to 7% than 6%, so we expect sales to slow further.

Sales far outpaced new listings in December, causing inventory to drop

In most of the Bay Area, the housing market looked progressively healthier with each passing month of 2024. Then Q4 happened and new listings dropped significantly. Sales declined, but at a much lower rate than new listings, and inventory declined precipitously. Inventory in Silicon Valley and San Francisco fell to historic lows in December 2024.

Typically, inventory begins to increase in January or February, peaking in July or August before declining once again from the summer months to the winter. It’s looking like 2024 inventory, sales, and new listings resembled historically seasonal patterns. Mortgage rates will likely slow the Bay Area markets due to the relatively high absolute dollar cost of financing a home. For many buyers and sellers, a $1 million mortgage at 7% simply isn’t feasible.

Months of Supply Inventory indicate a sellers’ market in most of the Bay Area

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. Currently, MSI is below three months of supply (a sellers’ market) in every Bay Area county except for single-family homes in Napa, which favor buyers.