South Bay / Silicon Valley October '23 Real Estate Update Ascend RE

Local Lowdown

Year to date, single-family home and condo prices were up significantly in San Mateo and Santa Clara. Santa Cruz single-family homes were up slightly, while condos were slightly down. 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 rose from July to August, but is likely the last push of the summer buying season. 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.

Single-family home price growth slows across most of Silicon Valley

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 15% in San Mateo, 25% in Santa Clara, and 3% in Santa Cruz. Condo prices in San Mateo and Santa Clara were up 16% and 20%, respectively. Condos in Santa Cruz were the only exception, down 2% for the year. 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 rose in August

Single-family home and condo inventory, sales, and new listings trended higher year to date, although all remain at significantly depressed levels. Typically, inventory peaks in July or August and declines through December or January. Single-family home and condo inventory reached new highs for the year in August, but we will likely see fewer transactions in the coming months if normal seasonal trends hold. 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 this year, 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 125% while new listings rose 86%, whereas last year, for example, sales rose 50% and new listings increased 18% by August.

As tight inventory levels continue, sellers are gaining negotiating power. In January 2023, the average seller received 93% of list price compared to 101% of list in August. Inventory will almost certainly remain historically low for the rest of the year and likely remain low in 2024.

Months of Supply Inventory remained under two months in August, 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 horizontally over the past six months at a low level. MSIgenerally indicates a sellers’ market due to the higher proportion of sales relative to active listings and short time on the market.

Conclusion

The fall market seems to be highlighted by lower than average prices, higher than normal inventory, and low buyer activity. We’ve told clients the following "if you can afford the higher mortgage, and you have good job security, now is an amazing time to buy.” Not all people are capable of buying at the moment. If you fulfill my two requirements above, now is one of the best opportunities to jump into the market. If you are a seller and ready to sell, it is unfortunately a difficult marketplace. Though change is a constant in this market, experts don't necessarily think prices will rise rapidly. We are hopeful that 2024 will bring positive market changes for homeowners. As always, don’t hesitate to reach out and schedule a consultation to go over your real estate needs!