The Local Lowdown: May 2024

Michelle Kim | June 11, 2024

The Local Lowdown

Quick Take:

Median home prices are slightly below peak levels across Silicon Valley. As more new listings come to market, we expect prices to continue rising and to reach new highs during the summer months.
Active listings, sales, and new listings rose in Silicon Valley month over month, which are all beneficial for the housing market. We expect inventory to increase in the first half of the year, and possibly return to a more normal market, after the slowdown experienced over the past year and a half.
Months of Supply Inventory declined from January to April, indicating that buyer competition is ramping up. MSI implies a sellers’ market in Silicon Valley across counties.

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

Median prices rose month over month in Santa Clara and Santa Cruz, but fell in San Mateo

In Silicon Valley, 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 April, the median single-family home price fell 1% in San Mateo, but rose 4% in Santa Clara and 9% in Santa Cruz. Year over year, prices were also up across markets for single-family homes, up 9% in San Mateo, 11% in Santa Clara, and 5% in Santa Cruz. Similarly, condo prices rose significantly month over month in Santa Clara and Santa Cruz, but fell in San Mateo. We expect prices in Silicon Valley to remain slightly below peak until the early summer, but prices will almost certainly reach new highs in the second quarter of 2024. Low, but rising inventory is only increasing prices as buyers are better able to find the best match.

High mortgage rates soften both supply and demand, but homebuyers seemed to tolerate rates above 6%. Now that rates are above 7%, sales may slow slightly in the next couple of months, which isn’t great for the market, but isn’t it terrible, either, as it may allow inventory to build in a massively undersupplied market.

Single-family home 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, 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 came to the market in 2024, which has driven the significant increase in sales so far this year. The market is already looking healthier, and we expect more new listings and sales in Q2 2024.

With the current inventory levels, the number of new listings coming to market is a significant predictor of sales. New listings rose 19% month over month, and sales followed suit, increasing 26%. Year over year, inventory is up 15%, and sales are up 44%. Demand is clearly high in Silicon Valley, but more supply is needed for a healthier market.

Months of Supply Inventory fell in April 2024, indicating 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. From January to April 2024, single-family home and condo MSI fell significantly, indicating the housing market strongly favors sellers.