Bay Area Housing Inventory Shortage Will Likely Continue in 2021

A Bay Area housing market inventory shortage has made things tougher on home buyers in 2020, and those conditions will likely persist into 2021 as well. This is based on recent data from Realtor groups and other sources.

Home buyers who are planning to buy in the near future should give themselves plenty of time, with the ongoing shortage of housing market inventory in the Bay Area. They can also benefit from broadening their search area and getting their financing lined up ahead of time.

Bay Area Housing Market Inventory Drops in 2020

In September 2020, Realtor.com® published an update to its weekly housing market report that examines real estate conditions in metro areas across the country.

Among other things, this report tracks monthly and annual inventory changes within major metropolitan areas. Their latest report revealed that housing market supply levels are down sharply in many U.S. metros, including the San Francisco Bay Area.

Nationwide, there were 40% fewer homes for sale during the week of September 17, 2020, when compared to the same week a year earlier.

According to Danielle Hale, chief economist for Realtor.com:

“Inventory is so low that any disruption, such as this week’s wildfires and hurricanes, feels even more stifling for would-be home buyers. Buyers hoping to take advantage of less competition during the housing off-season will likely be disappointed and could find it even more difficult to find a home.”

Granted, real estate conditions can vary widely from region to the next. The housing market inventory declines for the San Francisco Bay Area were not as steep as the 40% national average mentioned above. But inventory has dropped in our region as well, and it was already low going into 2020.

The Realtor.com report showed that the total number of real estate listings (homes for sale) within the San Francisco-Oakland-Hayward metro area dropped by -14.1% from September 2019 to September 2020. This is true for most cities across the region.

In fact, the city of San Francisco is one of the only housing markets within the broader Bay Area where inventory has increased in recent months. In nearly every other city within our region, supply has dropped — and sharply in many cases.

Tight Supply Conditions Are Boosting Prices

In most cities across the Bay Area, low housing market inventory is forcing buyers to compete fiercely for desirable properties. Buyers are reportedly putting in strong offers with few or no contract contingencies, among other things.

Home prices tend to rise under those kinds of conditions. And that’s exactly what we are seeing right now, as we move into the fall of 2020.

A recent report from the California Association of Realtors showed that the San Francisco Bay Area had less than a 2-month supply of homes for sale in August 2020. That was well below the national average for the same timeframe and indicative of a tight housing market.

“C.A.R.’s Unsold Inventory index (UII) remained at the lowest level in the last 15 years. The UII fell sharply from 3.2 months in August 2019 to 2.1 months this August,” the report stated.

As it stands, low supply levels will influence the Bay Area’s real estate markets for the foreseeable future.

Related: 3 things buyers should know in 2021

Advice for Bay Area Home Buyers in 2021

Do you plan to buy a home in the Bay Area during the last two months of this year, or sometime in 2021? If so, you’ll want to develop a solid game plan that accounts for the low housing market inventory situation in the Bay Area.

Here are some time-tested strategies you can use:

• Expand your search. You probably have some idea as to where you want to buy a home — what part of town, what neighborhood, etc. But you might not be able to find the right property at the right price in that “first choice” area. You might have to broaden your search or scale back on your wishlist. That’s the reality of buying a home at a time of low supply.
• Strengthen your offer. When housing inventory is tight, as it is within the San Francisco Bay Area, it’s important for home buyers to make their best offer the first time. Research recent sales in the area where you want to buy, and base your offer on those sale prices. It’s probably not the time to “lowball” the seller or nitpick over insignificant issues.
• Prepare your finances. Most home buyers in the Bay Area use a mortgage loan to finance a portion of the purchase price. If you fall into that category, it’s probably a good idea to get your mortgage loan lined up before you start house hunting. Having a pre-approval letter from a lender can make sellers more inclined to accept your offer.