Will Home Prices in the San Francisco Bay Area Drop in 2022?

There have been numerous reports over the past few weeks suggesting that the real estate market might cool down in 2022. But most of those reports have focused on the nation as a whole. At the city, metropolitan and regional level, it’s more of a mixed bag.

Which begs the question: Will Bay Area home prices drop in 2022?

Here in the San Francisco Bay Area, a lot of home buyers and homeowners wonder if house prices will start to level off or drop in 2022. While no one can make such predictions with complete certainty, it seems unlikely that Bay Area home prices will drop significantly in 2022.

In fact, one forecast predicts that the median house value for our metro area could climb by double digits over the next year (as it did during 2021). So let’s dig deeper into this subject.

Will Bay Area Home Prices Drop or Rise in 2022?

Over the past couple of years, we have seen record-breaking home price growth here in the San Francisco Bay area. You’ve probably read the headlines or seen it on the news, so you know the story. The short version is that an unprecedented inventory shortage, combined with strong demand from buyers, sent house prices through the roof.

But what might we expect over the coming months? Will prices continue climbing this year, or could Bay Area home values drop in 2022?

In March, the real estate data company Zillow predicted that house prices in the San Francisco-Oakland-Hayward metropolitan area would continue rising over the coming months. The company reported that the median home value for our metro area rose by a whopping 18% over the past year or so. Looking forward, they estimated that prices could rise by around 17% through March of 2023.

According to a March 2022 statement on the company’s website:

The typical home value of homes in San Francisco-Oakland-Hayward Metro (94146) is $1,391,474. This value is seasonally adjusted and only includes the middle price tier of homes. San Francisco-Oakland-Hayward Metro (94146) home values have gone up 18.3% over the past year and Zillow predicts they will rise 17.3% in the next year.

That’s a fairly bold forecast, given the tremendous price growth we’ve seen over the past couple of years. Other forecasters have suggested that home prices in the Bay Area and nationwide could moderate or slow down during 2022. The thing to remember is that forecasting future housing trends is not an exact science, but rather an educated guess.

Inventory Shortage Continues to Frustrate Buyers

In March 2022, Realtor.com published a housing market report with data for the nation’s 50 largest metro areas. Among other things, this report showed how the total number of active real estate listings has changed over the past year.

Here in the Bay Area, an already-tight inventory situation seems to have shrunk even more. According to the Realtor.com report, the total number of active real estate listings in the San Francisco-Oakland-Hayward metropolitan area declined by 24.5% from February 2021 to February 2022.

This could be why some forecasters don’t expect to see a home price drop in the Bay Area during 2022. If the demand from home buyers continues to exceed the available supply of houses, it could put upward pressure on prices for the foreseeable future.

Rising Mortgage Rates Could Affect the Market

Some economists expect to see a slight reduction in home buyer demand during 2022, as a result of higher interest rates. The average rate for a 30-year fixed mortgage loan has risen in recent weeks, and this could impact the Bay Area real estate market in 2022.

During the week of March 10, the average rate for a 30-year fixed mortgage loan in the U.S. rose to 3.85%. That’s up from around 3.1% at the end of last year. Mortgage rates continue to “bounce around,” as always, but they are doing so in a higher range than at the start of this year.

The bottom line is that, barring an unexpected home price drop, Bay Area housing costs will likely increase during 2022. House values have risen substantially and could continue to climb this year. Meanwhile, mortgage rates are higher now than they were at the start of this year – and they could creep higher over the coming months.

Home buyers who are “on the fence” and waiting to see if prices will drop should pay close attention to these trends. If house values and interest rates continue to climb in 2022, buying power will decrease.

Disclaimer: This article includes forecasts and predictions from third parties not associated with our company. No one can predict future real estate or economic trends with complete accuracy.