The Local Lowdown: June 2023

Michelle Kim | June 1, 2023

The Local Lowdown

Quick Take:

Active listings in the East Bay were flat month over month in April, as more homes went under contract and fewer listings came to market.
The median single-family home price rose over $200,000 in Alameda and $175,000 in Contra Costa over the past three months, indicating that lower inventory is once again driving pricing despite higher mortgage rates.
Months of Supply Inventory has declined significantly in 2023, and sellers are receiving a greater percentage of asking price, both of which highlight an increasingly competitive environment for buyers.

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

Home prices are rising rapidly

Inventory is once again driving the rapid price appreciation that the East Bay is experiencing in 2023. Last year, single-family home and condo prices peaked in May as buyers rushed to lock in a lower mortgage rate. The Fed announced rate hikes at the end of 2021 that would swiftly affect rates in 2022. The average 30-year mortgage rate rose 2% in the first four months of 2022, crossing 5% for the first time since 2011. That 2% jump caused the monthly cost of financing to increase 27%, so buyers rightly rushed to the market. As rates rose higher, the market cooled and home prices fell in large part to accommodate the higher cost of a mortgage. Both supply and demand were lower than normal in the second half of 2022. However, in 2023, demand started to rise again despite elevated mortgage rates, but it wasn’t met with the typical number of new listings.

This year, the number of new listings has been significantly lower than usual. Typically, inventory grows in the first half of the year as new listings greatly outpace sales. At this point, inventory in the second quarter can’t grow fast enough to create a more balanced market, keeping supply of homes and, in turn, sales historically low for the rest of the year. As demand increases through the summer months, competition among buyers will climb with it, raising home prices. Condo prices are near their record highs, and if inventory continues to fall, prices could reach new highs over the summer months.

Inventory flat month over month as fewer new listings came to the market

Single-family home inventory rose slightly in April, while condo inventory fell. Sales and new listings both declined from March to April. However, in this instance, a decline in sales doesn’t indicate softening demand. The number of home sales is, in part, a function of the number of active listings. New listings fell 41% compared to last year, so it’s not surprising that sales declined as well. Even with higher interest rates, which only reduces the number of potential homebuyers, seasonal demand far outpaced available inventory. Over the past three months, sales jumped 70% while new listings only increased 42%. In a typical year, the percentage change in new listings would at least be the same if not higher than the change in sales.

Buyer competition is ramping up with fewer listings coming to the market, and sellers are gaining negotiating power. In January 2023, the average seller received 95.4% of list price compared to 103.3% of list in April. Inventory will almost certainly remain depressed for the rest of the year and will likely only get more competitive in the summer months.

Months of Supply Inventory remains low, indicating a firm 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 East Bay market tends to favor sellers, and the drop in MSI over the past three months for both single-family homes and condos further emphasizes sellers’ increasing negotiating power.