Earlier this month, the California Association of Realtors published a new report relating to the…
Why Is the Bay Area Housing Market So Expensive These Days?
The Bay Area real estate market is one of the most expensive in the nation, when measured by median home values. In fact, if you look at the major metro areas across the country, only New York City comes close to matching the high home prices in our region.
Which begs the question: Why is the Bay Area housing market so expensive?
As usual, it comes down to supply and demand. Our metro area has a relatively high population density, along with a shortage of available housing inventory.
Why Is the Bay Area Housing Market So Expensive?
It’s no secret that the Bay Area real estate market is expensive. Both renters and home buyers pay a premium to live in this region.
Here are some numbers to put it into perspective:
- According to Payscale.com, the overall cost of living for most of the San Francisco Bay Area is around 70% – 80% higher than the national average. (It varies by city.)
- According to the real estate data company Zillow, the median home value for the San Francisco-Oakland-Hayward metro area was north of $1.3 million in October 2021. By comparison, the national median price was around $303,000 during that same month.
So yes, the Bay Area can be a pricey place to buy a home.
We’ve already touched on the reasons why the Bay Area real estate market is so expensive. For the most part, it comes down to good old-fashioned supply and demand. These two factors tend to influence pricing more than anything else. This is true for everything from crude oil to electronics to houses.
Here’s how supply and demand influence the Bay Area housing market:
Population Growth Drives Buyer Demand
Our region tends to attract new residents from other parts of the country, many of whom work in the tech and financial industries. So there’s rarely a shortage of home buyers within the local real estate scene.
Steady demand is one reason why our housing market is so expensive, when compared to national averages. And this demand is largely driven by population growth and density.
Over the past decade, the San Francisco Bay Area population grew at a faster pace than both the state of California and the nation as a whole. That’s based on data published by the U.S. Census Bureau in August of 2021.
According to an August article in The San Francisco Chronicle:
From 2010 to 2020, the nine-county region added 614,901 residents amid a tech boom, an 8.6% increase that surpassed California’s growth rate of 6.1% and the U.S. rate of 7.4%, according to a Chronicle analysis.
Steady population growth tends to increase demand for housing, among renters and buyers alike. It also helps explain why the Bay Area housing market is so expensive.
So, population drives demand among buyers. But that’s not the full story. There’s a supply side to this equation as well. So let’s talk about that next.
Tight Supply Conditions Increase Competition
As any recent home buyer can tell you, housing inventory in our region can be very tight. Most times, there just aren’t enough homes listed for sale to meet the demand from buyers.
This kind of imbalance increases competition and boosts prices. It’s also part of the reason why the San Francisco Bay Area real estate market is so pricey.
Granted, supply levels can fluctuate over time. But the current supply shortage has been going on for years, affecting almost every city in the region.
As of September 2021, most cities across the Bay Area had less than a one-month supply of homes for sale. That’s well below the national average and indicative of a strong seller’s market.
Also, there’s not a lot of “open space” in the San Francisco-Oakland-Hayward metro area. This limits the amount of new-home construction that can take place. Single-family zoning and other factors contribute to the housing shortage.
Seeking Out Affordable Areas
Despite the current $1.3 million median home value within the Bay Area region, there are some relatively affordable housing markets here and there. We’ve written about them in the past, focusing on Solano County in particular.
In terms of the average house price, the most affordable cities within the Bay Area are found within Solano County. These include the cities of Dixon and Vallejo, among others. In these markets, the median home value is less than half of what it is for the broader Bay Area.
Where you buy a home can affect how much you pay for it. So geography is obviously a factor. But it helps to be flexible in other aspects of your home search as well.
Many Bay Area buyers find that they have to make compromises when it comes to the size and other features of the home. It would be nice to check all of the boxes on your wishlist. But in a housing market as expensive as ours, that doesn’t always happen. Flexibility is warranted.