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Bay Area Housing Market Forecast for 2017

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We’re halfway through November, with the end of the year in sight. That means a lot of Bay Area home buyers are looking ahead to 2017. And many are wondering what the real estate market will be like next year. Here are some Bay Area housing market forecasts for 2017, from a variety of sources.

The ‘Bay Area’ Defined

What is the Bay Area exactly? Which housing markets are included in this forecast? For reporting purposes, we are using the “textbook” definition of the San Francisco Bay Area, which includes nine counties and more than 100 municipalities.

Counties: The Bay Area comprises nine counties including: Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano, and Sonoma.

Cities: There are too many cities within the Bay Area to list here. The region covers more than one hundred cities and towns and is home to over 7 million residents. Major cities include Berkely, Concord, Fremont, Hayward, Napa, Oakland, San Francisco, San Jose, Santa Rosa, Sonoma and Sunnyvale.

Due to the size and diversity of this region, it can be difficult to issue a single housing market forecast for the entire Bay Area. So we are taking a “divide and conquer” approach. Below, we have compiled some forecasts and commentary for the Bay Area as a whole. We are also creating individual housing market forecasts for key cities in the region.

Bay Area Housing Market Forecast for 2017

The general consensus among housing analysts and economists is that the Bay Area real estate market will slow down in 2017. Many forecasts and predictions have been issued to this effect. The “slowdown” in this context refers to both home-price appreciation and overall market activity. In most Bay Area cities, home prices are expected to rise more slowly in 2017 than they did in 2016.

Related: 3 things Bay Area buyers should know

Similar housing market forecasts have been issued for the state of California as a whole. In September of 2016, the California Association of Realtors (CAR) published its statewide forecast for 2017. In it, the group said home prices could rise more slowly in the months ahead.

“The net result will be California’s housing market posting a modest increase in 2017,” said Leslie Appleton-Young, CAR’s chief economist. “The underlying fundamentals continue to support overall home sales growth, but headwinds, such as global economic uncertainty and deteriorating housing affordability, will temper stronger sales activity.”

The economic research team at Zillow has also issued a more conservative forecast for Bay Area and California housing markets in 2017. By their estimation, home values across the state rose by 5.8% during 2016 (measured from Nov. ’15 to Nov. ’16). Looking forward, they expect California home prices to rise by around 1.5% in 2017.

The table below shows home value trends and forecasts for select cities across the Bay Area, as reported by the economists at Zillow. The second column shows how prices changed over the last 12 months (as of November 2016, when this article was published). The third column shows Zillow’s forecast for the next 12 months, through November 2017.

Bay Area City 1-year change
(Nov. 2015 – Nov. 2016)
1-year forecast
(Nov. 2016 – Nov. 2017)
Concord +7.1% +1.3%
Fremont +6.5% +1.2%
Hayward +10.5% +1.5%
Oakland +11.9% +2.6%
Santa Clara +6.6% +0.7%
San Francisco +1.1% -0.2%
San Jose +5.4% -0.3%

As you can see, these analysts expect home prices in the Bay Area to rise more slowly over the next 12 months, compared to the last year. For all of the housing markets shown above (and for many others that are not shown here), the one-year forecasts were a fraction of the gains measured over the previous 12 months. Clearly they expect the market to slow down.

Upside: A Return to Sustainable Growth?

The more conservative Bay Area home price forecasts for 2017 are, in a sense, good news. They suggest that the housing market is slowing down to a more sustainable level of growth, which is a positive trend for long-term stability.

When home prices rise too quickly, outpacing wage growth and other economic metrics, we get into “bubble” situations. We know from history that bubbles are bad for the housing market, and for the economy as a whole.

Some Bay Area housing market forecasts for 2017 are predicting a slowdown in price growth over the coming months. But, from an economic perspective, this can be viewed in a positive light. A cooling trend in the housing market would give wage growth a chance to catch up, and should help normalize a market that has been overheated in the past. In the long term, sustainable growth is far better than booms and busts.

A cooling trend in the Bay Area real estate market could also help ease some of the affordability issues that have been reported recently.

Inventory Still Tight in Many Cities

CAR also reports that supply is tightest in the Bay Area, when compared to the state as a whole and other regions like Southern California and Central Valley. This should come as no surprise to local real estate agents and home buyers. In some Bay Area cities, housing supply is seriously constrained right now, forcing buyers to compete fiercely for a limited number of homes.

Normally, this kind of supply-and-demand imbalance would drive home prices north — and it has. But house values seem to be reaching a sort of peak right now, due to affordability issues. So it’s possible that we will see smaller price gains in 2017, even for those housing markets with limited supply.

Outlook for Individual Cities

We are in the process of compiling and publishing 2017 housing market forecasts for numerous Bay Area cities, for a more localized look at real estate trends. This is an ongoing project. Here are the latest individual market reports:

Oakland, CA forecast for 2017
Oakland has experienced something of a “spillover” effect, with people moving into the city from more expensive neighboring areas. This trend lifted home prices in 2016, and it could continue to do so in 2017.

Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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