December 2023 South Bay Market Update
Resilient. If asked to describe the South Bay real estate market in one word, it would be Resilient. Despite attention grabbing headlines of doom and market busts, the local real estate market has faired well for 2023. It hasn’t been a year of price growth, but considering we have endured the highest mortgage rates in over 20 years, and inventory levels have been anemic at best, the market has showed us it is one built on a solid foundation and a lot of homeowner equity. With a bad case of “rate-lock-itis” (I may trademark that term), there is a reluctancy on the side of sellers to commit to selling their home with their low rates (60% under 4% nationwide), buyers have been left to pick through the scraps when shopping for a property. There certainly have been some gems in the mix, but the number of fixers and dated properties has far exceeded the number of move-in ready or those located in premier locations.
The 2 charts below illustrate the impact of higher rates and lower inventory. The first chart is closed sales by price range and shows the growth during the historically low mortgage rates seen in the pandemic period, followed by a rapid decline since Spring of 2022. The second chart shows inventory in terms of month’s supply. This factors in the amount of current properties for sale and compares it against the number of homes selling each month. This captures both supply and demand and puts it in terms of how long it would take for all existing inventory to sell without new inventory being added. From the chart we can see there is strength in the $3.3M and below as well as the $5M and above segments of the market. It’s the middle that is showing the greatest weakness. This is the discretionary buyer in our markets. They typically currently own a house, have an interest rate under 4%, and the desire to move doesn’t outweigh the cost of moving in terms of higher payments and higher property taxes. The other ends of the market either need to move because they are tired of paying rent or they are cash buyers and see the opportunity to buy trophy properties with less competition.
I’ll save it for my January report to put a bow on the final market statistics, and for good reason. Since the week of Thanksgiving, there have been some impressive homes put into escrow suggesting that local buyer sentiment has improved. These big sales coincide with a considerable drop in mortgage rates with jumbo mortgages coming in around 6.25-6.5%, down from the mid 7% range just about a month earlier. Couple that with a nice run for the stock market, and it’s no wonder we are seeing some moves in the real estate market. In terms of it being a buyer’s or a seller’s market? I would say we are in the closest thing we’ve seen to a balanced market in 4 years.
It’s correct to assume 2023 isn’t going to set any records for sales volume or high prices, but while other “hot” pandemic markets like Austin and Nashville are seeing significant price corrections, the South Bay has held up with only a slight drop in overall prices. If you have any questions about your home or the data in your neighborhood, please reach out and I am happy to provide a neighborhood specific market report customized to your property.
For more, please check out my weekly market updates to get the regular scoop on the market.