The average 30-year mortgage rate fell 1.18% in the last two months of 2023, which is a significant drop from the 23-year high reached at the end of October 2023 and cut the cost of financing by 11%.
Although sales are still down 7% year over year, they rose 1% month over month, ending a five-month streak of decline. Even though inventory rose for most of 2023, supply is still tight, which prevented home prices from falling meaningfully in the second half of the year.
The median home price declined approximately 7% in the second half of 2023, about half as much as the 13% decline in the second half of 2022. If the Fed begins to cut rates as soon as March, which financial markets are predicting, 30-year mortgage rates could easily fall another point, bringing buyers and sellers back to market in the spring and summer.
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.
The median single-family home price rose from November to December, up 7.1%, while condo prices declined 7.1%, coincidentally. Year over year, prices appreciated, up 3.1% for single-family homes and 6.7% for condos.
Active listings in San Francisco fell 28% month over month. Both single-family home and condo inventory hit record lows, as new listings declined significantly.
Months of Supply Inventory declined significantly in December, as sales outpaced new listings, indicating the market firmly favors sellers as we enter the new year.
Note: You can find the charts/graphs for the Local Lowdown at the end of this section.
In San Francisco, home prices haven’t been largely affected by rising mortgage rates after the initial period of price correction from May 2022 to July 2022. Since July 2022, the median single-family home and condo prices have hovered around $1.5 million and $1.2 million, respectively. Month over month, in December, the median single-family home price rose 7%, while condo prices declined 7%; but, year over year, the median prices were up 3% for single-family homes and 7% for condos. We expect prices to remain fairly stable in the winter months, but as interest rates decline and more sellers come to the market, prices will almost certainly rise in the first half of 2024. Additionally, the sustained downward inventory and low number of new listings will only raise prices as demand grows. More homes, however, must come to the market in the spring and summer to get anything close to a healthy market.
Since the start of 2023, single-family home inventory has followed fairly typical seasonal trends, but at a significantly depressed level, while condo inventory has been in decline since May 2022. 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 peaked in May, while new listings and inventory peaked in September. New listings have been exceptionally low, so the little inventory growth throughout the year was driven by fewer sales. In November and December, new listings dropped significantly without a proportional drop in sales, causing inventory to fall to an all-time low, which further highlights how unusual inventory patterns have been over the past year. With inventory at historic lows, the number of new listings coming to market is a significant predictor of sales. Month over month, new listings fell 53% and sales declined 27%. Year over year, sales and new listings are down 10% and 67%, respectively. Total inventory is down 32% year over year.
As demand slows, buyers are gaining more negotiating power and paying slightly less than asking price on average. In June 2023, the average seller received 102% of list price, compared to 96% of list in December. Inventory will almost certainly remain historically low for the next few months, and buyer competition will ramp up meaningfully in the spring, which will drive price appreciation.
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 in 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 San Francisco market tends to favor sellers, at least for single-family homes, which is reflected in its low MSI. However, we’ve seen over the past 12 months that this isn’t always the case. MSI has been volatile, moving between a buyers’ and sellers’ market throughout the year. MSI declined substantially in December, and currently indicates that the single-family home and condo markets favor sellers.
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