Every year, by at least March, we expect to see inventory rise after a higher number of new listings comes to market, which easily accommodate the increase in sales we also tend to see in the first half of the year. Inventory in the Bay Area, thankfully, increased in February and March, unlike the inventory in many other major markets, which is continuing to decline. Typically, inventory grows in the first half of the year, peaking in June or July. The Bay Area has enough demand that many more homes could come to market before the market moves into balance between buyers and sellers. Currently, sales are still below last year’s level, but we expect sales to climb higher in the second quarter with more homes coming to market. As demand increases, competition among buyers (and therefore prices) will climb with it. Bay Area home prices are still significantly below their all-time highs. However, if active listings unexpectedly plateau or drop in the second quarter, we could easily see single-family home and condo prices rise significantly into the summer.
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). MSI dropped in February and March, meaning the market now strongly favors sellers. The sharp drop in MSI occurred due to increasing sales, low inventory, and less time on market.
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