Mortgage rates rose in February, closing the month at 6.94%. However, the Fed will almost certainly cut rates at some point this year, so potential homebuyers would only need to service the current rate level for a short period of time before refinancing.
Sales increased 3% month over month, which, although still low, is a sizable increase. More homes are coming to the market and quickly translating to more sales. Inventory increased 2%, as new listings rose by 25%. More supply and growing demand are good for the market, especially this time of year — right before the busier spring and summer seasons.
Months of Supply Inventory (MSI), which expresses the supply & demand dynamic, fell over the past three months, indicating the market is getting more competitive for buyers.
Different regions and individual houses vary from the broad national trends, so we’ve included a Local Lowdown below to provide you with in-depth coverage for your area. In general, higher priced regions (the West and Northeast) have been hit harder by mortgage rate hikes than less expensive markets (the South and Midwest) because of the absolute dollar cost of the rate hikes and limited ability to build new homes. As always, we will continue to monitor the housing and economic markets to best guide you in buying or selling your home.
Median home prices are slightly below peak levels across the North Bay with the exception of single-family homes in Marin, which are far below peak. We expect prices to begin rising, and to reach new highs in the spring, across most of the North Bay.
Active listings, sales, and new listings rose in the North Bay month over month, which are all beneficial for the housing market. We expect inventory to increase in the first half of the year and possibly return to a more normal market after the slowdown experienced over the past year and a half.
Months of Supply Inventory rose slightly over the past two months, as new listings outpaced sales. However, MSI still indicates a sellers’ market in most of the North Bay.
In the North Bay, low inventory and high demand have more than offset the downward price pressure from higher mortgage rates, and prices generally haven’t experienced larger drops due to higher mortgage rates. Month over month, in February, the median single-family home price rose 2% in Marin and 3% in Sonoma, and stayed the same in Solano, while Napa prices declined 27%. However, year over year, prices were up 4% in Marin, 7% in Napa, 6% in Solano, and 9% in Sonoma. The median single-family home price in Napa reached an all-time high last month, and, as expected, corrected in February, which explains the large month-over-month decline. We expect prices in the North Bay to remain slightly below peak until late spring, but as interest rates decline, prices will almost certainly reach new highs in the first half of 2024 with the exception of Marin, where prices are far below their peak. Additionally, inventory is so low that rising supply will only increase prices as buyers are better able to find the best match.
High mortgage rates soften both supply and demand, but at this point rates have been above 6% for 15 months, and rate cuts will likely occur sometime this year. Potential buyers have had longer to save for a down payment and will have the opportunity to refinance in the next 12-24 months, which makes current rates less of a limiting factor. However, high demand can only do so much for the market if there isn’t supply to meet it.
Since the start of 2023, single-family home inventory has followed fairly typical seasonal trends, but at significantly depressed levels. Low inventory and fewer new listings have slowed the market considerably. Typically, inventory peaks in July or August and declines through December or January, but the lack of new listings prevented meaningful inventory growth. Last year, sales and new listings peaked in May, while inventory peaked in September. New listings have been exceptionally low, so the little inventory growth in 2023 was driven by softening demand. In January 2024, single-family home and condo inventory and sales dropped, but more new listings came to the market, which drove a higher number of sales in February. With the current low inventory levels, the number of new listings coming to market is a significant predictor of sales. New listings rose 27% month over month, and sales increased 8%. Year over year, inventory is up 1%; however, sales are down 4%. The next three months will be critical to our understanding of the market. More supply will mean a healthier market and a more normal housing market in 2024.
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