Unbelievable! The first quarter of 2023 is already in the history books. I feel like Q1 2023 is one of the most important first quarters I’ve ever felt the need to scrutinize since I began my real estate career 20 years ago.
That’s because Q1 in 2022 was such an unusual period in real estate history, with just about every sales metric off the charts. All that came to a screeching halt in Q2 2022 when the Federal Reserve’s aggressive interest rate increases poured ice water on the clearly overheated market.
Since then, the market has been holding its breath, as both listings and sales plummeted. But prices? Prices are down for sure, but the degree to which prices are down has quite a bit of variability across the region. Of course, I’ve crunched the numbers for you, and if you want to get into the nitty gritty, keep reading!
With Q1 out of the way, the all-important Q2 is looming large. The months of April, May, and June typically have the highest sales volumes of the year, especially for high-end real estate.
As the spring selling season gained momentum, buyer demand continued to rise from the depths of the mid-winter slump, as evidenced by the rise in the number and percentage of listings going into contract, as well as the rise in the percentage of listings that received overbids. Consumers seemed to enjoy the 4-week drop in interest rates following the Silicon Valley Bank collapse, which was an unexpected but much appreciated consequence of the bank’s implosion.
Even though things have improved greatly since the second half of 2022, the market is still much weaker than this time a year ago. Keep in mind, though, that Q1 2022 marked the beginning of the end of a historic 10-year bull market. Many comparisons to 2021 and the first part of 2022 will be impacted negatively by this.
I think the most important factor at work in our real estate market is the drought of inventory. Many talking heads in the real estate space have speculated that people have put off selling due to high interest rates. The narrative is that everyone refinanced into rates in the 2’s and 3’s. The theory goes that moving up has become cost-prohibitive, so would-be sellers are just sitting tight.
This may be true in most parts of the country, however folks around here who are most-likely to sell – older, retirement-age empty-nesters – have quite a bit of equity in their homes. These sellers are likely to move out of the area and pay cash (or mostly cash) for their next home, making the interest rate argument far less relevant for them.
My anecdotal experience, from talking with hundreds of potential sellers, says that root cause remains uncertainty. People just don’t know what’s going on; there have been too many changes too quickly for people to feel comfortable making long-term plans, so many are choosing just to sit tight. That’s my sense of it at any rate.
Whatever the reason, it’s a fact that new listings are unusually low – dare I say extremely low – for this time of year.
The demand-to-supply ratio, or the number of sales divided by the number of listings for sale, is much weaker in the highest price segments across the Bay Area compared to the lower price segments. In other words, competition for lower-priced homes is much stronger than competition for higher-priced homes, which is perhaps a reflection of the tech layoffs we’ve been hearing so much about.
The luxury housing market has been hit particularly hard by the market correction that began in the middle of 2022, though sales have begun to improve again this year. Each week at my office meeting for the past month there have been no shortage of reports that multi million dollar listings have been receiving multiple offers and selling handsomely over asking price.
In fact, there’s a growing chorus of voices within the real estate community that the market has turned a corner. If so, it would be a remarkably short time for the market to be in recovery. Typically, market downturns in the Bay Area run about 18 months or so. The next few months should tell us if we’ve managed a “soft landing” or if in fact prices have further down to slide before finding firmer footing.
And now, without further ado, the real estate market numbers.
March 2023 Real Estate Sales Data
Santa Clara County
- Sales: 645 (-28.4% vs. 981 year-ago)
- Median Price: $1.675M (-11.84% vs. $1.9M year-ago)
- $/sf: 1,057 (-12.9% vs. 1,214 year-ago)
- DOM: 24 (+118% vs. 11 year-ago)
- Sales-to-List-Price Ratio: 1.02
- New Listings: 897 (-28.2% vs. 1,375 year-ago)
Santa Cruz County
- Sales: 96 (-31.4% vs. 140 year-ago)
- Median Price: $1,19M (-25.6% vs. $1,6M year-ago)
- $/sf: 836 (-7.8% vs. 907 year-ago)
- DOM: 45 (+181.25% vs. 16 year-ago)
- Sales-to-List-Price Ratio: 1.004
- New Listings: 147 (-28.6% vs. 206 year-ago)
- Sales: 156 (-29.7% vs. 222 year-ago)
- Median Price: $898,250 (-2.2% vs. $918,500 year-ago)
- $/sf: 743 (-2.49% vs. 762 year-ago)
- DOM: 46 (+100% vs. 23 year-ago)
- Sales-to-List-Price Ratio: 97.64
- New Listings: 172 (-32.5% vs. 255 year-ago)