The Local Lowdown: September 2023

The Local Lowdown: September 2023

The Local Lowdown

Quick Take:
  • Year to date, single-family home and condo prices were up significantly across Silicon Valley. We expect seasonal trends to hold through the rest of the year and for home prices to remain fairly stable.
  • Sales, new listings, and inventory all fell from June to July, likely indicating the start of the typical seasonal decline across supply and demand metrics. Inventory remains depressed but has still grown significantly in 2023, which has helped alleviate some excess demand.
  • Months of Supply Inventory has declined significantly in 2023, homes are selling more quickly, and sellers are receiving a greater percentage of asking price, all of which highlight an increasingly competitive environment for buyers.
Note: You can find the charts/graphs for the Local Lowdown at the end of this section.
 

Single-family home price growth slows as fewer new listings come to market

In Silicon Valley, the housing market is always experiencing high demand, especially in the spring and early summer months. 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. Typically, demand begins to decline in July and August, so the consistently low supply may become less of an issue. However, less of an issue doesn’t mean a non-issue. Quality new listings will certainly be sold quickly, while less desirable homes will sit on the market. This isn’t unusual, but it’s more apparent due to current mortgage rates. Potential homebuyers aren’t nearly as willing to pay a premium for a fixer upper as they were in 2020 and 2021.
 
Although we don’t expect any new record-high prices in 2023, the median single-family home and condo prices were up significantly across Silicon Valley counties. Year to date, single-family home prices have increased 17% in San Mateo, 21% in Santa Clara, and 13% in Santa Cruz. Condo prices in San Mateo, Santa Clara, and Santa Cruz were up 15%, 10, and 7%, respectively. As sales and new listings slow in the second half of the year, home prices typically remain stable or decline at the margins.
 

Inventory, sales, and new listings declined in July

Single-family home and condo inventory, sales, and new listings rose in the first half of the year, although all remain at depressed levels. Typically, inventory peaks in July or August and declines through December or January. Single-family home inventory seems to have peaked in June, so we will likely see fewer transactions in the coming months. Currently, inventory is so low relative to demand that any amount of new listings is good for the market. However, new listings were unusually low from January through July 2023, which has directly impacted both inventory and sales. The number of home sales is, in part, a function of the number of active listings and new listings coming to market. Since January 2023, sales jumped 106% while new listings rose 50%, whereas last year, for example, sales rose 40% and new listings increased 33% by July.
 
As tight inventory levels continue, sellers are gaining negotiating power. In January 2023, the average seller received 93% of list price compared to 100% of list in July. Inventory will almost certainly remain historically low for the year, and the market will remain competitive in the third quarter.
 

Months of Supply Inventory remained under two months in July, indicating a strong 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, especially for single-family homes, which is reflected in its low MSI. MSI has trended even lower over the past six months for single-family homes, meaning the market more strongly favors sellers. The sharp drop in MSI occurred due to the higher proportion of sales relative to active listings and less time on the market. The only exceptions are condos in Santa Cruz, which are closer to a balanced market.
 

Local Lowdown Data


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