In the Greater Bay Area, the housing market is always experiencing high demand. Even as prices rise quickly, especially in the North and East Bay, coupled with mortgage rates near 20-year highs, demand is still strong. High demand and low inventory are driving the rapid home price appreciation that the Bay Area has experienced this year. Housing prices typically work in a counterintuitive way. In a classic supply/demand problem, as supply falls and demand remains steady or increases, prices rise. Housing works a bit differently. In the first half of the year, new listings usually rise rapidly, far outpacing sales and causing overall inventory to rise from the winter lows. Demand also tends to rise in the first half of the year, and the increasing supply actually benefits the overall market because buyers can more easily find a home that suits their wants and needs. Finding the right home is far more valuable than feeling forced into a home that’s not right, so prices tend to rise in the first half of the year.
Year to date, single-family home prices have increased 17% in the North Bay, 30% in the East Bay, 20% in Silicon Valley, and 6% in San Francisco. For condos, prices were up 6% in the North Bay, 9% in the East Bay, 15% in Silicon Valley, and 23% in San Francisco.
Inventory declined as new listings slowed faster than sales
Single-family home and condo inventory, sales, and new listings rose in the first half of the year, although all remain at depressed levels. The number of home sales is, in part, a function of the number of active listings and new listings coming to market. Currently, inventory is so low relative to demand that any amount of new listings is good for the market. Potential sellers who have fully paid off their property are in a particularly good position if they don’t have to finance their next property after the sale of their home. Since January 2023, sales jumped 115% while new listings rose 53%. From May to June, however, sales fell 1%, while new listings dropped 7%.
As buyer competition has ramped up and sellers are gaining negotiating power, sellers are receiving more of their listed price. In June 2023, the average seller received 6-10% more of their listed price as compared to January. Inventory will almost certainly remain historically low for the year, and the market will remain competitive in the third quarter.
Months of Supply Inventory is under two months in June across the Bay Area, 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 Bay Area market tends to favor sellers for single-family homes, which is reflected in its low MSI. San Francisco was notable for its substantial rise in MSI from December 2022 to February 2023, but MSI plummeted in the second quarter. Overall, MSI has trended lower this year, indicating 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.
