Soft Landing for Bay Area Real Estate in 2023

Economists these days are talking – yet again – about a “soft landing” for the economy. It seems that a lot of them are increasingly optimistic that we’ll actually achieve it. Hey, there’s a first time for everything!

But looking over the most recent statistics for the Bay Area real estate market, I have to wonder: might we have a soft landing here too?

A lot of buyers are on the sidelines because they feel that the real estate market stands at some kind of precipice, and it may soon fall off a cliff. But the longer the market hangs tight, there’ll be a growing realization that this long-awaited “correction” may not be coming around any time soon.

And I don’t mean to say that the market will hit a stable and long-standing plateau. It never does. The market is always moving up or down, at least a little bit.

Check out these market statistics, and you can be the judge of what they’re telling us about our real estate market. I’m going to break down a few key metrics here for Santa Clara, Santa Cruz, and Monterey counties – for each county, I provide a link to a PDF flip book which contains highly detailed information for each county. Go ahead, take a look:

Santa Clara County – Q4 2022 vs. Q4 2021

Median House Sales Price: Down 6%
Sales Volume: Down 45%
Sales over Asking Price: 36%, down from 77%
Sale Price to Original List Price Ratio: 96% vs. 108%
Average Days on Market: 30 days, vs. 19 days
Absorption Rate (% of listings sold): 52% vs. 78%
$3+ Million Home Sales: Down 55%

2022 Median Price: $1,750,000 (+8.0%)
2021 Median Price: $1,620,000

Click here for all Santa Clara County Stats and Graphs

Santa Cruz County – Q4 2022 vs. Q4 2021

Median House Sales Price: Up 4.5%
Sales Volume: Down 41%
% of Sales over Final List Price: 35%, vs. 61%
Sale Price to Original List Price: 95% vs. 101%
Avg. Days on Market: 36, vs. 27 days
Absorption Rate (% of listings sold): 47% vs. 70%
$2+ Million Home Sales: Down 36%

2022 Median Price: $1,305,000 (+8.8%)
2021 Median Price: $1,200,000

Click here for all Santa Cruz County Stats + Graphs

Monterey County – Q4 2022 vs. Q4 2021

Median House Sales Price: Down 3%
Sales Volume: Down 47%
% of Sales over List Price: 26% vs. 48%
Sales Price to Original List Price %: 95% vs. 99%
Avg. Days on Market: 44 days vs. 33
Absorption Rate (% of listings sold): 41% vs. 69%
Higher-Price Home Sales, $2 Million+: Down 53%

2022 Median Price: $860,000 (+1.8%)

2021 Median Price: $845,000

Click here for all Monterey County Stats and Graphs

Many of the statistics do show a significant downturn – fewer sales, homes taking longer to tell, lower absorption rate, lower sales to list price ratio.

But one number is not showing much of a change: the median sale price. Santa Clara and Monterey counties show modest price declines, while Santa Cruz shows a modest price increase.

As I mentioned in last week’s email, I am expecting home prices to moderate somewhat. A “soft landing” for real estate could not mean pulling exactly even with some kind of prior level. It can’t, because there never really is a prior level – just prior peaks and troughs, and price points in between.

To my mind, a soft landing for real estate looks like a run-up in prices followed by something other than a massive price decrease … which would mean either gradually decreasing prices, or gradually increasing prices, for a period of time … which seems to be exactly the market that we have right now.

Of course, we could be in for a prolonged period of gradually decreasing prices. But look at the past 30 years of home price appreciation and depreciation:

The longest period of decreasing prices was three years, in the early 1990s (coinciding with a recession and the famous “jobless recovery”) – and those were very modest price decreases.

The future is uncertain, and of course, past performance is no guarantee of future results. But from where I’m sitting, I’m going to have to say it looks like the real estate market is going to be just fine.