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With 172 closed sales in the greater South Bay, volume remains extremely subdued relative to most of the last decade, as well as slightly below Q2 of this year.  As is the story in many markets, sellers are having a hard time accepting lower valuations and giving up attractive low rate debt at the prospect of an exchange while buyers are struggling with huge down payment requirements and increased borrowing costs.  Time will tell if this stalemate persists as the specter of resetting commercial loans looms large on the horizon.


The average price per square foot of closed sales in Q3 2023 rose to the highest level in the last year at $502/sq ft.  This was a 3.5% increase from last quarter.  While still below mid-2022 levels, it’s a clear sign that further price declines due to interest rate increases may be elusive for those on the sidelines.  Price per door also rose to a 12 month high at $454,381.


Income metrics look to have leveled off after 3 quarters of deterioration.  The average Gross Rent Multiplier (GRM) for closed sales in Q3 rose to 17.3 from 16.7 in Q2 while cap rates decreased 10 basis points from 4.1% to 4.0% over the same period.  Looking back over the last year, these supporting levels suggest a pricing equilibrium has been reached as a result of increased rates.  It’s worth noting that there remains a huge gap in pricing between 2-4 unit “residential” income property vs. 5+ unit “commercial” multi-family property.  A spread of 3.4 multiples in gross rents and 90 basis points of yield in cap rates separate the two classes.  It’s definitely a good time to be a seller of a 2-4 unit property and a buyer of a 5+ unit property.


After a notable increase in active listings in Q2 of this year, inventory has remained steady through the third quarter at an average of 523 active deals on the market in each month.  Although this is an elevated level from what we’ve seen throughout the last 5 years, still nothing compared to what we saw leading up to the subprime crash.  An interesting observation was that although active listing counts remained flat, the total average market size (active dollars listed) rose by about 10%, or $100 million, perhaps an indication of inflation’s effect on dollar prices.

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