The Local Lowdown: December 2023

The Local Lowdown

Quick Take:

The median single-family home price declined 9.4% from October to November, while condo prices rose 1.3%. Single-family home and condo prices have hovered around $1.5 million and $1.2 million, respectively, and we expect that trend to continue until interest rates drop and more sellers come to the market.
Active listings in San Francisco fell month over month, as an unusually low number of new listings came to the market. Single-family home and condo inventory hit a record low in November.
Months of Supply Inventory for single-family homes fell significantly in October and November. While MSI still indicates a buyers’ market for condos, single-family home MSI now implies that the market strongly favors sellers.

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

Prices continue horizontal trend for both single-family homes and condos

In San Francisco, home prices haven’t been largely affected by rising mortgage rates after the initial period of price correction from May 2022 to July 2022. Since July 2022, the median single-family home and condo prices have hovered around $1.5 million and $1.2 million, respectively. Month over month, in November, the median single-family home price fell 9%, while condo prices rose 1%; but, year over year, the median prices were the same as last November for both single-family homes and condos. We expect prices to remain fairly stable in the winter months, but as interest rates decline and more sellers come to the market, prices will almost certainly rise in the first half of 2024. More homes must come to the market in the spring and summer to get anything close to a healthy market.

High mortgage rates soften both supply and demand, so ideally, as rates fall, far more sellers will come to the market. Rising demand can only do so much for the market if there isn’t supply to meet it. Unlike 2023, 2024 inventory has a much better chance of following more typical seasonal patterns.

Single-family home and condo inventory hit all-time lows as new listings dropped in November

Since the start of 2023, single-family home inventory has followed fairly typical seasonal trends, but at a significantly depressed level, while condo inventory has been in decline since May 2022. 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. This year, sales and inventory peaked in May, while new listings peaked in September. New listings have been exceptionally low, so the little inventory growth from February to May was driven by fewer sales. In November, new listings dropped significantly without a proportional drop in sales, causing inventory to fall to an all-time low, which further highlights how unusual inventory patterns have been this year. With inventory at historic lows, the number of new listings coming to market is a significant predictor of sales. Month over month, new listings fell 57% and sales declined 13%. Year over year, sales and new listings are down 12% and 43%, respectively.

As demand slows, buyers are gaining slightly more negotiating power and paying less than asking price on average. The average seller received 96% of list in January, which grew to 101% by June. The average amount received by sellers slowly declined to 98% of list from June to November 2023. Inventory will almost certainly remain historically low for the next few months, and buyer competition will ramp up meaningfully in the spring, which will create price support.

Months of Supply Inventory indicates a sellers’ market for single-family homes and a buyers’ market for condos

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 in 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 San Francisco market tends to favor sellers, at least for single-family homes, which is reflected in its low MSI. However, we’ve seen over the past 12 months that this isn’t always the case. MSI has been volatile, moving between a buyers’ and sellers’ market throughout the year. Currently, MSI indicates that the single-family home market favors sellers and the condo market favors buyers.