Quick Take
· Home prices rose month over month, signaling that low inventory and seasonality are still affecting pricing despite higher mortgage rates.
· Active listings in the East Bay rose slightly in February as fewer listings came to market, but inventory is still near historic lows.
· Months of Supply Inventory declined as sales increased and homes sold faster month over month, indicating the market has moved deeper into a sellers’ market.
Typical and atypical seasonal trends
This time of year, we usually see both inventory and sales increasing steadily through mid-summer. Inventory is able to grow, even with rising sales, because of the relatively high number of new listings that typically come to market in the first half of the year. However, the number of new listings in January and February hasn’t outpaced sales enough to meaningfully increase active listings, which is an early sign that inventory will struggle to grow this year. Although we expect sales to be more muted in 2023, demand is already significantly outpacing supply. Even with higher mortgage rates, the East Bay is experiencing higher demand than much of the Bay Area. People simply want to live in the East Bay, and homes are still somewhat affordable, which translates to more market participants.
East Bay real estate prices have contracted more than other markets because prices grew so quickly in the first half of last year, up 34.5% for single-family homes from January to May 2022. Single-family home prices have declined 2.7% in Alameda over the past two years after declining 29.2% from the May 2022 peak. Condo prices, which have increased 2.1% over the past 24 months in Alameda, have been less variable. Similar to Alameda, Contra Costa single-family home prices have declined 6.2%, while condo prices increased 13.4% since February 2021. The next three months will give us a clearer picture of how buyers and sellers are reacting to the current market conditions, but early signs point to more competition over the limited number of listings in the East Bay as we enter the spring season.
Inventory near record lows
Single-family home and condo inventory rose slightly month over month, as new listings outpaced sales, but far fewer listings came to market than is typical this time of year. Notably, new condo listings decreased month over month. Higher interest rates have dropped incentives for potential sellers to enter the market, since sellers usually also must buy a new home. Homeowners either bought or refinanced recently, locking in a historically low rate, which means they aren’t selling and fewer listings are coming to market. Moreover, many potential buyers were priced out of the market as interest rates rose; however, interest rates have been higher for enough time that buyers are more comfortable re-entering desirable markets like the East Bay. Currently, buyers aren’t facing anything similar to the hypercompetitive 2021 market, but we will likely start to see more competition among buyers in the spring. New listings fell by 40.5% year over year, while sales declined 33.7%. We still expect some inventory growth in the first half of 2023, but inventory will likely remain low.
Months of Supply Inventory Dropped, Indicating a seller’s 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). MSI in the East Bay already indicated a sellers’ market, but dropped lower in February for both single-family homes and condos. The sharp drop in MSI occurred due to more sales and homes selling more quickly.