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Will Bay Area Home Prices Ever Go Down? (Revisited for 2022)

It’s no secret that home prices in the San Francisco Bay Area far exceed the national average.

In fact, we live in one of the nation’s most expensive real estate markets, when measured by median house values. And prices have risen sharply over the past 18 months, despite all of the COVID-related shakeups.

This has many folks wondering: Will Bay Area home prices ever go down? Will house values drop during the latter part of 2022, or maybe in 2023?

The short answer: While no one can predict future market trends with complete accuracy, it seems unlikely that Bay Area home prices will go down in 2022. The rate of appreciation could slow over the coming months. But prices will probably keep climbing, due to an ongoing supply-and-demand imbalance.

Challenging Times for Home Buyers

Bay Area home buyers have faced many challenges over the past couple of years. They’ve had to contend with the following trends and conditions:

  • An acceleration of home-price growth that started in 2020
  • Declining inventory levels with the housing market
  • Bidding wars and multiple-offer scenarios
  • Offers for more than the original list price

In short, we’ve seen a high level of competition among home buyers in the Bay Area. While the market is expected to cool a bit due to rising interest rates and other factors, it will likely remain competitive through 2022.

Will Bay Area Home Prices Ever Go Down?

But what about prices? Will Bay Area home prices ever go down, or will they keep climbing?┬áHere’s an April 2022 headline from the San Francisco Chronicle that addresses this very question:

“Why Bay Area housing prices are unlikely to drop despite climbing mortgage interest rates”

In this article, the author (citing local real estate professionals) listed several factors that are putting upward pressure on home values in our region. Low inventory and strong demand topped the list.

As the Chronicle report rightfully pointed out, the inventory situation within the Bay Area real estate market is still “super unbalanced.” As a result, buyers often have to offer more than the seller’s list price. While things appear to be easing a bit, these hyper-competitive conditions continue to boost prices in our region.

The Chronicle report also pointed out that there are plenty of high-income home buyers in the Bay Area. Yes, the median house price in our region is well above national norms. And in theory that might lead to a slowdown in price growth.

But the reality is there are plenty of folks in the San Francisco Bay Area who can still afford to buy a house, despite the big price increases of the past 18 months. In other words, there’s still plenty of demand.

So, will Bay Area home prices ever go down? Probably, at some point. Local, city-level real estate markets with the least amount of demand and/or the highest inventory will likely be the first to cool off. But the metro area as a whole seems poised for additional price growth over the coming months.

Where We Are Right Now, as of Spring 2022

As of May 2022, the median home value for the San Francisco-Oakland-Hayward metro area was fast approaching the $1.5 million mark. It could easily rise above that threshold by the time you read this article.

According to the real estate data company Zillow, the median home price for the Bay Area rose by around 20% in the past 12 months alone. This was reported in late May of 2022.

Many economists and housing analysts expect prices to rise more slowly through the second half of 2022. They point to things like inflation, higher mortgage rates, and inventory growth as indicators of a potential slowdown.

But again, we just haven’t seen that here in the Bay Area.

It seems inevitable that home prices in the San Francisco Bay Area will slow down later this year. The 20% year-over-year price gains mentioned above aren’t sustainable over the long term. So it’s plausible — if not likely — that house values will rise more slowly over the coming months.

Our housing market and the broader economy could actually benefit from a cooling trend in 2022 or 2023. The real estate market has been overheated for months now, with prices rising much faster than wages. This has led to housing affordability issues all across the region.

A cooling trend could help us get back to a more balanced and healthy housing market. But it remains to be seen.

Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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