In the North Bay, low inventory and high demand have more than offset the downward price pressure from higher mortgage rates, and prices generally haven’t experienced larger drops due to higher mortgage rates. Month over month, in February, the median single-family home price rose 2% in Marin and 3% in Sonoma, and stayed the same in Solano, while Napa prices declined 27%. However, year over year, prices were up 4% in Marin, 7% in Napa, 6% in Solano, and 9% in Sonoma. The median single-family home price in Napa reached an all-time high last month, and, as expected, corrected in February, which explains the large month-over-month decline. We expect prices in the North Bay to remain slightly below peak until late spring, but as interest rates decline, prices will almost certainly reach new highs in the first half of 2024 with the exception of Marin, where prices are far below their peak. Additionally, inventory is so low that rising supply will only increase prices as buyers are better able to find the best match.
High mortgage rates soften both supply and demand, but at this point rates have been above 6% for 15 months, and rate cuts will likely occur sometime this year. Potential buyers have had longer to save for a down payment and will have the opportunity to refinance in the next 12-24 months, which makes current rates less of a limiting factor. However, high demand can only do so much for the market if there isn’t supply to meet it.
Single-family home and condo inventory, sales, and new listings increased month over month
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 January 2024, single-family home and condo inventory and sales dropped, but more new listings came to the market, which drove a higher number of sales in February. With the current low inventory levels, the number of new listings coming to market is a significant predictor of sales. New listings rose 27% month over month, and sales increased 8%. Year over year, inventory is up 1%; however, sales are down 4%. The next three months will be critical to our understanding of the market. More supply will mean a healthier market and a more normal housing market in 2024.
Months of Supply Inventory in February 2024 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). 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. In January and February 2024, the North Bay market favored sellers. The only exceptions are single-family homes in Napa, which were balanced, and Marin condos, which favored buyers.
We can also use percent of list price received as another indicator for supply and demand. Typically, in a calendar year, sellers receive the lowest percentage of list price during the winter months, when demand is lowest. Winter months tend to have the lowest average sale price (SP) to list price (LP), and the summer months tend to have the highest SP/LP. The January and February 2024 SP/LP were both 1% higher than last year, meaning we expect sellers overall to receive a higher percentage of the list price throughout all of 2024 than they did in 2023.
