Here’s Why Bay Area Home Prices Probably Won’t Drop in 2022

With a record-breaking runup in home prices over the past year, some home buyers are now setting their sights on 2022. And many of them are wondering the same thing. Will San Francisco Bay Area home prices start to drop in 2022? Or will they continue climbing as they have since before the pandemic?

No one can predict future housing market trends with complete accuracy. But based on current trends and conditions, it seems unlikely that Bay Area home prices will start dropping in 2022. In fact, most signs point to a continued rise in house values — at least for the foreseeable future.

Why Bay Area Home Prices (Probably) Won’t Drop in 2022

Bay Area house values have risen steadily and substantially over the past year or so. According to a mid-July report from the California Association of Realtors (CAR), the median sale price for existing single-family homes in the region rose by 35% over the past year or so.

To quote their July 2021 report:

At the regional level, four of the five major regions in the state set new record high median prices in June, with each region increasing by more than 20 percent from a year ago. The San Francisco Bay Area continue to grow at the fastest pace with a year-over-year gain of 35.0 percent, followed by Southern California (30.3 percent), the Central Valley (23.8 percent), the Far North (22.0 percent) and the Central Coast (20.8 percent).

Looking forward, it seems likely that this upward trend will continue to some degree. Here are three specific reasons why Bay Area home prices are unlikely to drop in 2022.

1. Tight inventory conditions haven’t improved much.

If you know someone who has attempted to buy a home in the Bay Area lately, you’ve probably heard about the tight inventory conditions. This has been one of the biggest news stories of the past year, as far as the real estate market goes.

Recent reports have shown a slight increase in the number of new listings coming onto the market. But that hasn’t made a huge impact here in the San Francisco Bay area.

According to the CAR report mentioned above, the “unsold inventory Index” for the Bay Area stood at just 1.4 months of supply as of June 2021. That was a slight decrease over the previous month and a significant decrease over the previous year. Translation: The low-supply situation hasn’t improved much.

This is one of the main reasons why Bay Area home prices probably won’t drop later this year or 2022. A stark imbalance between supply and demand will continue to put upward pressure on house values, at least for the foreseeable future.

Side note: This is also why it will probably still be a seller’s market in 2022. Buyers can still succeed when purchasing a house in this tight market. But it does require patience and persistence. Flexibility goes a long way, as well.

2. Home buyer demand remains steady, as evidenced by sales activity.

Home sales are still chugging along within the San Francisco Bay Area estate market. While real estate conditions can vary from one city to the next, overall sales activity has increased across the region.

According to the July 2021 CAR report, home sales across the San Francisco Bay Area rose by a whopping 10.9% from May to June of this year. This shows that there is still a high level of demand within the real estate market, despite the fact that some buyers are being priced out.

This is another reason why Bay Area house values are unlikely to drop in 2022. There are still plenty of buyers in the market seeking homes to purchase, but not enough properties to go around. This is true for much of the country, as of summer 2021. But the imbalance is much more noticeable within the San Francisco Bay Area.

3. Forecasters are predicting a continued rise in prices, well into 2022.

According to the real estate data company Zillow, the median home value for the San Francisco-Oakland-Wayward metropolitan area rose by more than 11% over the past year.

Looking forward, the company’s analysts predicted double-digit price growth over the next 12 months as well. This particular forecast was issued in July 2021 and therefore extends into the summer of 2022.

Again, real estate forecasts like these are the equivalent of an educated guess. No one can predict future real estate or home-price trends with complete accuracy. But we seem to have all of the ingredients needed for continued appreciation into 2022. As a result, it seems highly unlikely that Bay Area home prices will drop anytime soon.