The Local Lowdown: October 2023

Michelle Kim | November 1, 2023

The Local Lowdown

Quick Take:

Year to date, single-family home prices are up across Silicon Valley. This year, condo prices were more mixed, with increases in San Mateo and Santa Clara, while Santa Cruz prices decreased. We expect home prices to remain fairly stable in the fourth quarter.
Active listings in Silicon Valley rose from August to September, continuing the 9-month upward trend. Rising inventory is only good for the undersupplied Silicon Valley market, which is still 17% below last year’s level.
Months of Supply Inventory rose in September as sales slowed and days on market increased. It’s common for the market to trend toward balance in the fall and winter, when fewer buyers are in the market. Currently, the market still favors sellers.

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

Price growth slows across most of Silicon Valley

Luxury markets tend to be affected more acutely by higher interest rates due to the absolute dollar cost of financing. In Silicon Valley, the price of housing has remained relatively stable during a period of rapidly rising mortgage rates. Increasing demand and low, but rising inventory helped drive the rapid home price appreciation that Silicon Valley experienced in the first half of the year. Single-family home prices contracted in the third quarter, with the exception of Santa Clara prices, which landed just 6% below the all-time high. We expect prices to remain fairly stable in the fourth quarter.

Typically, demand begins to decline in the fall and bottoms out in January, so the low supply of homes should be less of an issue. With mortgage rates at a 23-year high, quality listings are going to have the most competition. This isn’t unusual, but potential homebuyers aren’t nearly as willing to pay a premium for a fixer upper as they were in 2020 and 2021.

Inventory continued to trend higher for the ninth month in a row

Single-family home and condo inventory has trended higher into the fall of 2023, which is far from the seasonal norm. Typically, inventory peaks in July or August and declines through December or January. Even though inventory has increased, it’s still historically low, moving higher primarily due to softening demand (fewer sales) caused by higher interest rates and normal seasonality. Overall, new listings have been exceptionally low this year. The number of home sales is, in part, a function of the number of active listings and new listings coming to market. Comparing new listings from January through September 2023 to the same time period in 2022, new listings are down 26%, which has directly impacted both inventory and sales. Sales are down 22% year over year.

Even as demand slows, sellers are maintaining more negotiating power and receiving more than asking price on average. The average seller received 94% of list in January, which grew to 101% by April. From April to September, the average seller received 101% of list in every month. That being said, the percentage of list price received tends to contract in the winter when fewer buyers are in the market.

Months of Supply Inventory indicates the market is trending toward balance but is still 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 fell sharply in the first five months of 2023 before gently trending higher from May to September. MSI remained below three months of supply, indicating the market still favors sellers.