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Quick Take:
In the East Bay, home prices haven’t been largely affected by rising mortgage rates after the initial period of price correction from May 2022 to January 2023. Month over month, in November, the median single-family home price rose 0.4% in Alameda and 6.2% in Contra Costa. Condo prices were more mixed, with a 9.6% decline in Alameda and a 3.1% gain in Contra Costa.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 barely increased at all this 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 have slowed the market considerably. New listings have been exceptionally low, so the little inventory growth this year was driven by softening demand. Typically, inventory peaks in July or August and declines through December or January. However, this year, inventory peaked in October, further highlighting the atypical supply trend. In November, inventory, sales, and new listings dropped, which is normal this time of year. 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 29% and sales declined 18%.
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 in January, which grew to 105% by June. The average amount received by sellers slowly declined to 102% 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 (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 East Bay market tends to favor sellers, which is reflected in its low MSI. Single-family homes continue to strongly favor sellers in the East Bay. However, condo MSI has increased significantly over the past three months, indicating the market has shifted from a sellers’ market into a more balanced market.
Overall, 2023 has followed similar trends as what we’ve historically seen. The market expanded when we normally expected it to and contracted a bit as it normally does. However, inventory and sales have been down all year. Sellers are more hesitant to sell at lower price points and buyers are more hesitant to buy due to the higher interest rates on mortgages. Going forward though, we believe 2024 is going to change. Neither Buyers nor Sellers can hold off making a major life decision forever. Some people move simply for a change of scenery but most people buy or sell because of life events. Upsizing or downsizing, job change, school change, retirement, health issue, divorce and death. At some point we figure out a strategy forward despite the market. Anecdotally, I've connected with many families over the past 3 weeks about a move in 2024. It has been one of the busiest holiday months that we can remember and many are targeting 2024 as their year to Buy or Sell! If you are thinking to buy or sell in 2024, now is a great time to start the conversation. If you have a friend, colleague or family member needing help, we always appreciate an introduction.
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