Every year, by at least March, we hope to see inventory rise after a high number of new listings come to market, which easily accommodate the increase in sales we also tend to see in the first half of the year. However, the number of new listings declined each month of the first quarter of 2023, while sales rose. Typically, inventory grows in the first half of the year, peaking in June or July. We don’t expect the inventory growth in the second quarter to make up for the decline in the first quarter, keeping supply of homes and, in turn, sales historically low for the rest of the year. Even with sales trending higher, they are still far below last year’s level. As demand increases in the second quarter, competition among buyers and housing prices will climb with it. If active listings drop further in the second quarter, we could easily see home prices move significantly higher 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 for both single-family homes and condos, meaning the market shifted from a buyers’ market to a sellers’ market. The sharp drop in MSI occurred due to the jump in sales and continued low inventory.
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