The San Francisco Bay Area real estate market is going through a transitional phase as home prices adjust to changing economic and housing trends. Homes are finally becoming more affordable, although the regional cost of living remains expensive.
Here is a closer look at how home prices have performed during 2022 and what the latest Bay Area housing market predictions are.
Bay Area Housing Market Trends
With approximately eight million residents, real estate prices and market trends can vary by city and county. However, there are many overlapping pricing trends impacting buyers and sellers.
What Is the Bay Area?
The Association of Bay Area Governments considers these nine counties to be the San Francisco Bay Area:
- Alameda
- Contra Costa
- Marin
- Napa
- San Francisco
- San Mateo
- Santa Clara
- Solano
- Sonoma
Housing Inventory Remains Tight
In October 2022, there were 2.4 months of unsold inventory in the Bay Area—which is the lowest supply level statewide—according to the California Housing Market Update from the California Association of Realtors (CAR).
Additionally, the median days on the market for home listings is 20 days in the October CAR report, which is notably less than the national median of 51 days. Buyers are continuing to snap up properties and in the Central and Southern California markets had a median of 20 and 22 days, respectively.
However, fewer sellers are listing homes in 2022 versus 2021. For example, Realtor.com Research reports that new listings in November 2022 were down 28% year-over-year. There were only 2,978 new listings compared to 4,134 last September.
As a result, CAR reports a 37.3% year-over-year decrease in existing home sales.
Prices Are Starting to Decline
Buyers are less likely to encounter bidding wars and potentially pay above asking price for the first time since the early months of the pandemic.
CAR reports that the Bay Area sales price-to-list ratio was 98.3% in October 2022. A reading above 100 signals buyers are paying more than the asking price. However, plenty of in-demand homes are still selling for more than the list price as inventory remains low.
While homes are still expensive on a historical basis, the median existing home price for October 2022 is $1,250,000. That’s a decline of 2% year-over-year for the entire area as prices begin to stabilize.
However, the home price trends vary by county, several of which saw median sales prices increase in comparison to the third quarter of 2021.
The more affordable Bay Area counties witnessed higher sales prices while sellers in the pricier regions have been offering lower prices and have potentially reached a near-term peak.
Rising California mortgage rates are also pressuring high-priced markets to cool off.
Bay Area Housing Market Forecast
Housing prices will likely flatten and potentially be lower than the pandemic real estate boom as the S&P 500/Case-Shiller San Francisco Home Price Index indicates the local market peaked in May 2022.
However, the Bay Area remains a seller-friendly market as inventory is limited. The market is cooling and buyers are becoming more selective, but pre-pandemic housing prices don’t seem likely as the Bay Area job market remains healthy and mortgage delinquency rates are low.
Two market sectors that are the most likely to see the lower prices first are:
- Luxury homes: High-end home sales decreased 63.9% year-over-year in Oakland and approximately 55% in San Jose for the three months ending on August 31, 2022, according to Redfin. In comparison, sales of non-luxury homes declined by just 19.5% nationally.
- Condos: Condominiums and co-ops typically perform worse than houses. These properties have relatively more price reductions and are also likely to sell closer to or below list price.
Single-family homes and condos are still selling above list price. Still, that percentage is likely to decrease as the Bay Area housing market normalizes with increased inventory and slower property appreciation rates.
Several factors are impacting the Bay Area real estate market:
- Decreasing population: The estimated area population has dropped from 8.45 million in 2020 to 8.28 million in 2021 due to pandemic-related job losses, high rents and migration. San Francisco County had the largest one-year decrease at 6.3%.
- Higher mortgage rates: 30-year mortgage rates are at generational highs, making homeownership more expensive. As a result, potential buyers may wait for home prices to drop to secure an affordable monthly payment.
- Inflation: Households have less purchasing power as prices are rising for many monthly expenses including utilities, groceries and commuting costs.
- Rising rents: Bay Area rents are 1% to 3% below pre-pandemic rates but are expected to increase as 2023 approaches. Higher rents can encourage home ownership but also make it harder to save up for a down payment.
Is It a Good Time to Buy a House in the Bay Area?
If the Bay Area housing market predictions are accurate, prices should continue to decrease from this cycle’s highs. However, they may remain stubbornly high as the majority of homebuyers are still paying over list prices.
For example, the NorCal Alliance MLS data reports that 44% of homes in San Francisco closed over list price in November 2022. While high, that’s down from 73% in April 2022. Inventory remains relatively low, so people searching for a house should still consider placing a competitive bid if the property fits their needs and budget.
In general, waiting can help buyers as the market becomes more neutral. If possible, look at homes in multiple counties to potentially find less competitive listings.
Those who want to buy a luxury home selling for over $1 million will experience the biggest discounts, although waiting until 2023 might be a better financial move for this real estate sector if prices continue to trend lower.
Is It a Good Time to Sell a House in the Bay Area?
It’s still one of the best times to sell a home in the Bay Area, as many homes are selling above asking price and property values remain above pre-pandemic levels. Inventory is relatively limited, providing sellers pricing power despite slower—yet stable—buyer demand.
However, sellers should consider listing their property sooner to have a higher probability of selling a home quickly. Buyers are beginning to to require property inspections and submit lower bids, causing homes to stay on the market longer.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
