The Local Lowdown: July 2024

Michelle Kim | July 25, 2024

The Local Lowdown

Quick Take:

The median single-family home price in Santa Cruz reached a record high in June. Although sales are slowing, prices could still rise in July to new peaks.
Active listings, sales, and new listings declined in Silicon Valley month over month, which is normal this time of year. We expect inventory to increase into July and August and return to a more normal market after the slowdown experienced over the past year and a half.
Months of Supply Inventory indicates a strong sellers’ market in Silicon Valley, although more new listings have alleviated some of the excess demand in the area.

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

Single-family home prices in San Mateo and Santa Cruz reached all-time highs in May

In Silicon Valley, low inventory and high demand have more than offset the downward price pressure from higher mortgage rates. Home prices haven’t been largely affected by rising mortgage rates after the initial period of price correction from May 2022 to January 2023. In 2023, prices trended horizontally, but in 2024, prices have begun to rise meaningfully. In May, the median single-family home price reached record highs in San Mateo and Santa Clara. Although they fell from the May peak in June, Santa Cruz prices rose to an all-time high. Condo prices rose month over month across Silicon Valley. We expect prices in Silicon Valley to remain at or near peak until the mid-summer. Additionally, inventory is low enough that it will create price support as supply declines in the second half of the year.

High mortgage rates soften both supply and demand, but home buyers and sellers seemed to tolerate rates above 6%. Now that rates are near 7% again, sales are slowing during the time of the year when sales tend to be at their highest. This phenomenon isn’t great for the market, but it isn’t terrible, either, as it may allow inventory to build in a massively undersupplied market.

Inventory, sales, and new listings fell in June

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, new listings and sales 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 2023, inventory and sales dropped, but more new listings have come to the market in 2024, which has driven the significant increase in sales so far this year. The market looks far healthier than last year, and we expect the market to slow in the coming months — the seasonal norm.

With the current inventory levels, the number of new listings coming to market is a significant predictor of sales. New listings fell 19% month over month, and sales followed suit, declining 11%. Year over year, inventory is up 20%.

Months of Supply Inventory rose in June but still 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 trended higher in the second half of 2023, but never climbed above three months of supply. In Q1 2024, however, the Silicon Valley MSI fell significantly before rising significantly in Q2. Still, the single-family home and condo markets favor sellers, but the condo market is trending toward balance.