The Local Lowdown: October 2023

Michelle Kim | November 1, 2023

The Local Lowdown

Quick Take:

Year to date, single-family home prices were up across the North Bay, while condo prices were more mixed. Condo prices in Napa and Solano rose while prices in Marin and Sonoma fell. We expect home prices to remain fairly stable in the fourth quarter.
Active listings in the North Bay rose from August to September, continuing the 9-month upward trend. Rising inventory is only good for the undersupplied North Bay market, which is still 10% 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.

Single-family home prices decline slightly as we enter the fourth quarter

In the North Bay, the price of housing has remained sticky during a period of rapidly rising mortgage rates. Increasing demand and low, but rising inventory helped drive the rapid home price appreciation that the North Bay experienced in the first half of the year. Single-family home prices contracted in the third quarter but were still up year to date across the North Bay counties. Condo prices were more mixed, with year-to-date price gains in Napa and Solano and declines in Marin and Sonoma. 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 rose in September

Single-family home 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, normal seasonality, and an atypical increase in new listings in September. 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 28% year over year.

As demand slows, buyers are gaining slightly more negotiating power and paying less than asking price on average. The average seller received 93% of list in January, which grew to 101% by May. The amount sellers are receiving has started to decline, and by September 2023, the average seller received 97% of list. That being said, inventory will almost certainly remain constrained for the rest of the year, and likely remain low in 2024, which will create price support and at least minor competition among buyers.

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 North Bay market tends to favor sellers, which is reflected in its low MSI. MSI fell sharply in the first quarter this year before trending higher in the second and third quarters. MSI remained below three months of supply, indicating the market still favors sellers. The only exceptions are single-family homes in Napa, which shifted to a buyers’ market, and Marin condos, which are closer to a balanced market.