Bay Area Housing Market Update Q1 2024: Is the worst really over?
Market Update Q1 2024: Where are all the houses? Seriously, they were supposed to be coming onto the market this spring.
Despite optimism for 2024, the real estate market hasn’t shown much improvement. Let’s delve into a quick market update as of March 5th.
What We Expected in 2024
Spoiler alert: Things haven’t gone as planned. Throughout last year, we anticipated a significant improvement. We envisioned turning over the calendar and witnessing interest rates starting to come down, inventories rolling out, and a return to some semblance of normalcy.
For context, 2023 was dreadful. It marked the worst real estate market in nearly 30 years, which represents a literal lifetime for many first-time home buyers.
So, what gives? Why do we find ourselves here in March 2024, feeling like things aren’t going well?
Let’s Dive Into Some Numbers
What I did was dive back into the data to decipher what’s been going on.
You might be wondering why the market feels sluggish. Let’s unpack the reasons behind it. Remember, I mentioned how 2023 was a brutal year for real estate (especially for younger folks like us in the market). There’s also an Instagram video I did about this. But the big takeaway: the market has slowed down considerably.
In 2023, which marked one of the worst real estate markets in decades, we saw 1,144 units closed in January, February, and the first five days of March. Now, fast forward to our year-to-date numbers today, and we’re looking at 1,105 units. That’s roughly a three and a half percent lower then during the worst real estate market. So, what’s the explanation?
People have been talking about how 2024 is going to be a better year with stronger numbers. But what is happening? Let’s examine what properties have been listed on the market.
A significant influx of new inventory
Interestingly, there was a significant increase in new inventory in Alameda County this year. A total of 2,216 homes, condos, townhouses–units, as we broadly call them–appeared on the market during the just-over-two-month period I mentioned.
Comparatively, last year during the same timeframe, far fewer properties were listed—1,806 units, to be precise. This year, we observed a notable rise in the number of properties available for purchase and sale compared to last year, which is a positive sign.
This is what we had hoped for, but why aren’t we feeling the impact? Why aren’t the actual closing numbers getting us to where we want to be? Well, here’s why.
Days on market have significantly expanded.
When we examine the current market status of all those 2,200 properties, the average days on market in Alameda County stands at 60. That’s two months. This is a significant jump compared to what we’ve normally seen in recent years. In fact, it’s double what it was last year.
On average, properties that sold during the first couple of months of the year did so in an average of 31 days. So, we’ve essentially doubled in that regard. The properties that didn’t sell and were withdrawn from the market had been listed for somewhere between one and a half and two and a half months, depending on the dataset you examine.
Some properties lingered, didn’t sell, and eventually came off the market, taking approximately two months on average to do so. However, those that did transact did so within about a month, give or take.
But if we look back even further to 2022, we find that the average property sold in about 17 days countywide. So, we’ve essentially doubled twice in a row in terms of days on the market.
That’s the storyline—properties are lingering. Why? That’s the question everyone is trying to answer. Why is the market moving so slowly? Why aren’t we seeing transactions like we were just two years ago?
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The answer lies in interest rates.
Several factors are contributing to this. Firstly, there’s a lock-in effect. Home owners with interest rates below 5 percent, especially those at four and a half percent or lower, are opting to stay put. When looking at the numbers for a new house, whether it’s an equivalent property or a downsized one, their payments are likely to be similar or slightly higher. This scenario isn’t particularly appealing for most individuals, so many are choosing not to make a move.
Secondly, there’s an affordability issue.
Whenever I meet with sellers, we sit down to discuss their value expectations, the market comps, and devise a strategy to achieve their desired outcome. However, I always bring up the monthly payment for the desired price point, which often leads to a surprising reaction. Many sellers are taken aback by the monthly costs required to own the property they’ve cherished for so long.
When you factor in taxes and insurance, which are significant expenses nowadays, the monthly payments for a property of average value in almost any East Bay market, especially for single-family homes, range from six to twelve thousand dollars. This reality significantly impacts affordability, especially for those considering moving up, leaving a rental, downsizing, or making a lateral move. It’s a hefty financial burden to bear.
Consequently, some opt to stay put until affordability improves, while those actively looking to buy are more discerning. This is why consumers are opting to skip a generation of iPhone upgrades or aren’t trading in their cars as frequently for the newer model. If they’re going to pay six, eight, or ten thousand dollars a month, they want their investment to be ideal.
This trend contributes to longer days on the market, as people are not as quick to transact as they were in 2022. This divide between sellers and buyers is why we’re witnessing another doubling in days on market.
So here’s my advice…
I’m noticing what I refer to as A-plus properties—those that are pristine, in excellent locations or blocks, and move-in ready. These properties are in high demand because buyers want the best if they’re going to invest a significant amount of money.
However, if you’re in the market, don’t hesitate to consider and make offers on B or even C properties, especially if they meet your needs. They may not be your forever home or your perfect home, but there could be a deal waiting for you there. Often, sellers of these properties are patiently waiting for someone to choose them to negotiate with.
If you come in with a fair and reasonable offer, they’re likely to engage with you, especially as they see the days on market expanding and fewer people visiting their homes.
Another thing to consider is a buy-down. Many sellers are open to concessions during a negotiation, especially if they don’t have a lot of interest on their home.
Right now, there are opportunities to make transactions happen due to a gap in the market’s psychology. When everyone is moving in one direction, consider going the other way, zig when they zag — you may find success in unexpected places.
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