From Golden Gate Sotheby's Bay Area Market Report…
Low inventory in a stable market
The housing market stabilized somewhat in the second half of 2023 after a softening that began in mid-2022. For-sale inventory remained low throughout the year, limiting purchasing activity for both entry-level and upgrade buyers. As many employers urged employees to return to the office, longer commute times increased buyer demand for homes in the central San Francisco Bay Area.
Employment grows slowly, while international migration increases
A tight labor market, rising wages and a slowing technology sector have slowed job growth in the San Francisco Bay area, where the economy added an estimated 50,000 jobs last year, but the unemployment rate rose to 3.9%, still low by historical standards.
Mortgage rates continue to impact inventory
Despite slight improvements in mortgage rates in the second half of 2023, many homeowners are still locked into mortgages with rates far below current levels. As a result, the number of active listings remained low throughout 2023, and for-sale inventory declined further toward the end of the year as seasonal trends took hold. In fact, active listings fell to less than 2,900 as of December 2023, the lowest level since January 2022. Highlighting the low inventory, active listings averaged just 4,400 in 2023, down 16% from 2022.
Half of San Francisco Bay Area counties saw purchases exceed new listings in December, and inventory was tight in all counties, while listings remained roughly steady in two more counties. Alameda and Contra Costa counties saw the largest declines in average inventory for 2023, followed by Santa Clara County. Napa and Sonoma counties saw slight increases in inventory, which was already very low.
Supply shortages and weak demand in technology sector curtail sales
The number of homes sold in 2023 fell 23% to fewer than 36,000. A reduced supply of homes for sale, rising mortgage rates and difficulties affording homes inhibited home sales. Weakness in the technology sector further reduced the buyer pool in some areas. Technology jobs can significantly boost employee income, leading to increased demand for housing.
Fast forward to 2023, and many tech companies are cutting staff and implementing hiring freezes, leaving some households on the sidelines with declining income prospects.
However, sales volumes in the fourth quarter of 2023 were down just 7% year-over-year, compared to a 28% drop in mid-2023, finishing the year slightly worse than 2022.
Future outlook
The San Francisco Bay Area housing market is somewhat constrained by a lack of inventory in early 2024, but demand for housing remains strong. Mortgage rates have fallen in recent weeks, potentially bringing back buyers who have stayed out of the market. Additionally, the recent drop in interest rates could open up refinancing options for those who bought last year.
Overall, economic conditions in the region are expected to remain similar to 2023, with moderate job and income growth across industries. Key technology industries may remain stable, which should increase demand for housing in many regions. Inventory for sale may remain somewhat limited for the time being. This will continue to restrain sales volumes, but at the same time, it may increase competition in key regions and increase profits at various price points.
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