Bay Area Housing Market Forecast 2023, Based on Current Trends

Over the past couple of years, the San Francisco Bay Area real estate market revved up like never before. We experienced everything from record-low inventory levels to record-high price gains.

In light of all of those trends, it’s only natural to wonder what the real estate scene might be like next year. Here are some reasonable predictions and forecasts for the Bay Area housing market in 2023, based on where we are right now.

Bay Area Housing Market Forecast for 2023

Home buyers could encounter a lot less competition next year, along with a slower pace to the market. Home prices will probably rise more slowly in 2023, and they might even dip slightly over the short term. Meanwhile, inventory gains could make it easier for buyers to find a suitable property.

Let’s examine these three predictions for the Bay Area housing market in 2023:

1. Home buyers could encounter less competition.

The number of people who can afford to buy in the Bay Area has declined over the past couple of years. Fast-rising home prices have essentially shrunken the buyer pool, squeezing some buyers out of the market entirely.

As a result of these trends, those who plan to buy a home in the Bay Area in 2023 will likely encounter less competition from other buyers. Home prices and mortgage rates play a role here, as both have risen significantly since last year.

At the start of 2022, the average rate for a 30-year fixed mortgage was around 2.9%. That’s based on the weekly survey conducted by Freddie Mac. Those were historically low rates, and home buyers were taking full advantage of them.

But by early fall 2022, mortgage rates were averaging around 6.2% on a 30-year loan. In other words, they more than doubled over a 12-month period. These trends, along with rising home prices, have reduced affordability among buyers — thereby reducing demand.

Which leads to our first prediction for the San Francisco Bay area real estate market in 2023. As a result of higher prices and interest rates, home buyers could encounter less competition next year when compared to the past 18 months.

To put it another way: The market could be a lot more favorable for buyers in 2023.

2. Home prices could level off (for a change).

According to Zillow, the median home value for the San Francisco-Oakland-Hayward metro area rose from around $1.1 million two years ago, up to $1.4 million earlier this summer. But we’re already seeing signs of a slowdown, where home values are concerned.

And that brings us to Bay Area housing market forecast #2. In 2023, home prices in the region will likely decelerate compared to the pace of the past two years. They might even level off in the range they are right now, with some ups and downs over the coming months.

From a broader housing and economic standpoint, this is a good thing. A slowdown or a pause in price growth could give wages a chance to catch up, thereby reducing some of the affordability problems we have in the Bay Area.

3. Inventory challenges will remain, but improve slightly.

The supply situation remains tight across the San Francisco Bay area real estate market. But it has improved over the past year or so.

At the end of 2021, for-sale inventory levels “bottomed out” with about a 1-month supply of homes for sale. But by the summer of 2022, our housing market had about a 2.5-month supply. That’s a step in the right direction, from a buyer’s perspective.

Which leads to Bay Area real estate market prediction #3. In 2023, home buyers will likely have more properties to choose from, compared to those who purchased over the past couple of years.

Overall, the supply situation could remain challenging for some buyers. And the house-hunting process might take longer than expected, due to a relative shortage of inventory. But this situation has improved quite a bit in recent months.

All of these trends are connected. For example, if we continue to see inventory gains going into 2023, it could further cool the market and reduce competition among buyers. This in turn could have a decelerating effect on home-price growth across the region.

In a sense, the Bay Area real estate market is slowly but surely getting back to normal. In 2023, the market should be less “extreme” compared to what we experienced during 2021. It could also be less competitive from a buyer’s perspective.

Disclaimer: This article contains real estate related forecasts stretching into 2023. Such predictions are based on current housing trends and therefore far from certain.