The Local Lowdown: January 2024

The Local Lowdown

Quick Take:

Year over year, the median single-family home prices rose across most Bay Area counties in December, while condo prices were more mixed. We expect more buyers and sellers to come to the market in the spring as mortgage rates decline further.
Active listings in the Greater Bay Area fell 27% month over month, as sales nearly doubled new listings, which fell to record lows. As mortgage rates drop, we will likely see more new listings in the first quarter, which should help alleviate some excess demand.
Months of Supply Inventory declined significantly in December, as sales outpaced new listings, indicating the market firmly favors sellers as we enter the new year.

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

Median single-family home prices close 2023 up year over year across most of the Bay Area

In the Greater Bay Area, home prices haven’t been largely affected by rising mortgage rates after the initial period of price correction from April 2022 to January 2023. In December, the median prices across most Bay Area counties were only slightly below their record highs with the exception of Marin and San Francisco, which peaked incredibly high in 2022. 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. However, 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 inventory, 2024 inventory has a much better chance of following more typical seasonal patterns.

Inventory, sales, and new listings declined month over month

Single-family home and condo inventory barely increased at all last year, which is far from the seasonal norm. In 2023, inventory didn’t have anything resembling the typical sine wave, since far fewer sellers came to the market, especially in the first half of the year, and the low inventory and fewer new listings slowed the market considerably. New listings have been exceptionally low, so the little inventory growth last year was driven by softening demand. In fact, new listings were the lowest on record in the Bay Area, and the lack of new listings was the main reason San Francisco inventory declined to a record low in December. Typically, inventory peaks in July or August and declines through December or January. In December, inventory, sales, and new listings dropped across Bay Area markets. With the current low inventory levels, the number of new listings coming to market is a significant predictor of sales. Month over month, new listings fell 50% and sales declined 10%. Year over year, sales and new listings are down 9% and 14%, respectively. Total inventory is down 17% 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 95% of list price in January, which grew to 102% by mid-year. From June to December, the average seller received around 99% of list price.

Inventory will almost certainly remain historically low for the next few months, and buyer competition will ramp up meaningfully in the spring, which will drive price appreciation.

Months of Supply Inventory in December 2023 indicated 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 Bay Area markets tend to favor sellers, which is reflected in their low MSIs. San Francisco MSI is notable for its variability over the past year, oscillating from buyers’ to sellers’ markets twice over the course of 10 months. Currently, single-family home MSI is below three months of supply (sellers’ market) in every Bay Area county except for single-family homes in Napa, which is more balanced, and condos in Monterey, which now favors buyers. The condo markets are a little more mixed, but mostly balanced.