- Like the rest of the country, home prices in the Greater Bay Area have hit a ceiling after two years of substantial growth along with hitting the seasonal summer slowdown.
- Demand for homes is clearly softening, as sales decline despite more inventory.
- New listings declined in July, a seasonal norm, which means that inventory in 2022 will likely peak at historically low levels.
Note: You can find the charts/graphs for the Local Lowdown at the end of this section.
Is the market balancing? Tentatively, maybe!
The median single-family home and condo prices in the Greater Bay Area continued to decline from their peaks reached earlier this year. These movements are within the bounds of normal price variability, but after large price gains, it feels like any downward movement signals a market correction. As mentioned in the Big Story, prices tend to stagnate in the summer and fall months when inventory is at its highest, so we aren’t ringing the alarm bells quite yet. Homes over the past five years have become less affordable, yet demand boomed. With 30-year mortgage rates potentially settling around 5%, fewer potential buyers will participate in the market than they did last year when mortgage rates were at all-time lows.
Supply is still historically low, which will protect prices from experiencing a major downturn. Prices will likely follow a similar trend as last year, holding relatively steady through the summer and fall months. If you’re following home prices closely, as we tend to do, you don’t need to worry about losing equity in your home, or softening demand, or even an official recession — so long as it doesn’t affect your job. The housing market remains strong in the Greater Bay Area.
July saw housing inventory rise in the North Bay and East Bay, but decline in Silicon Valley and San Francisco. Inventory tends to peak in the summer months, which appears to be the case this year. We entered 2022 with the lowest inventory in history, but the number of homes for sale has risen considerably since December 2021 in each Bay region except for San Francisco. Although the supply of homes is still far from pre-pandemic levels, we’ve been pleased to see that inventory at least increased in the first half of the year. With the substantial drop in sales and new listings from June to July 2022, the peak inventory levels for 2022 will likely be the lowest on record.
The steep decline in sales indicates that demand is softening. We aren’t saying that demand is low, but it’s trending closer to balanced between buyers and sellers than we’ve seen in years.
Months of Supply Inventory inches toward a more balanced 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). Notably, single-family home MSI has climbed higher over the past four months with the exception of San Francisco, but remains well below three months of supply, indicating that the Greater Bay Area is still experiencing a sellers’ market.