Rising Demand Still Outpaces Rising Supply
Every year, by at least March, we expect to see inventory rise after a higher number of new listings comes to market, which easily accommodate the increase in sales we also tend to see in the first half of the year. Inventory in the Bay Area, thankfully, increased in February and March, unlike the inventory in many other major markets, which is continuing to decline. Typically, inventory grows in the first half of the year, peaking in June or July. The Bay Area has enough demand that many more homes could come to market before the market moves into balance between buyers and sellers. Currently, sales are still below last year’s level, but we expect sales to climb higher in the second quarter with more homes coming to market. As demand increases, competition among buyers (and therefore prices) will climb with it. Bay Area home prices are still significantly below their all-time highs. However, if active listings unexpectedly plateau or drop in the second quarter, we could easily see single-family home and condo prices rise significantly into the summer.
Sales Jumped 56% From February To March
Total inventory in the Bay Area rose over the past two months, but remains depressed. Higher interest rates and the buying boom from June 2020 to June 2022 created the current market conditions of low inventory, new listings, and sales. Homeowners generally aren’t buying and selling properties year after year; the median homeowner tenure is about 13 years, according to Redfin. It’s reasonable, therefore, to assume that if an outsized number of sales happen in a two-year period, far fewer sellers will come to market in the year or two after that event. For homeowners who either bought or refinanced in 2020 or 2021, with historically low rates, the prospect of moving and financing at a much higher rate isn’t appealing.
Interest rates have been elevated for enough time that buyers are more comfortable re-entering desirable markets like the Bay Area. Sales jumped 55.7% from February to March, as more new listings hit the market. Even in San Francisco, where new listings dropped month to month, sales rose 67%. Buyers aren’t yet facing anything similar to the hypercompetitive 2021 market, but competition is certainly ramping up. New listings fell by 17.3% year over year, while sales declined 41.9%. We expect inventory growth in the second quarter of 2023, but inventory will almost certainly remain low relative to demand for the rest of the year.
Higher And Faster Sales Drop Months Of Supply Inventory Further
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 dropped in February and March, meaning the market now strongly favors sellers. The sharp drop in MSI occurred due to increasing sales, low inventory, and less time on market.
