After a grueling downturn, home prices in California’s Bay Area are finally rebounding — to the chagrin of buyers still in the market.
The median house price in the area gained 5% in August to $1.26 million versus a year earlier at $1.2 million. According to the latest data from Compass, this marked the first time in 13 months that the price didn’t decline.
The upward trend is expected to continue and the speedy rebound means that local homebuyers may face a competitive market once again, especially without many listings to choose from — unless they opt for downtown condos.
“San Francisco as a market or the peninsula as a whole is pretty brutal,” Ben Lo, a Bay Area-based millennial who started house hunting after getting engaged in July, told Yahoo Finance. “It is not just the highest price, but you needed to remove contingencies on inspections, you needed to pay all cash, there’s just so much more to it in San Francisco.”
For just over a year, buyers got a break, while sellers lost hundreds of thousands of dollars in equity as the market digested higher mortgage rates and widespread tech layoffs.
That’s largely over.
“I expect that all Bay Area Counties will have a positive year-over-year appreciation rate in the coming few months,” Patrick Carlisle, chief market analyst for the San Francisco Bay Area at Compass, wrote to Yahoo Finance, “Five of the nine [counties] turned positive in August, the rest should turn positive very soon.”
The nine counties in the Bay Area include San Francisco, Santa Clara, Alameda, San Mateo, Contra Costa, Napa, Marin, Solano, and Sonoma. The five counties with positive annual growth were Santa Clara, Alameda, Contra Costa, Sonoma, and Napa.
Limited desirable inventory
Like the national housing market, limited inventory largely contributed to the price rebound in the Bay Area.
“Buyer demand rebounded in 2023 from the deep low point of late 2022,” Carlisle wrote in his market report. “Along with the substantial decline in new listings, this has created an imbalance in supply and demand, leading to faster sales, more multiple offers, and more sales over asking price.”
For instance, Santa Clara, with a population of nearly 2 million residents and the heart of Silicon Valley, had 1,190 active and coming-soon listings as of Sept. 1. As the biggest county in the Bay Area by resident count, Santa Clara’s available homes for sale in September declined by 28% year over year and 40.5% over the last four years.
“I’ve had a couple of $3-$4 million buyers looking for months,” Jennifer Rosdail, a KW agent based in San Francisco, on her clients searching in Marin County, west of the San Francisco County. “They don’t even go look at houses because nothing comes on the market for them.”
Single-family homes in residential neighborhoods are hot commodities in the Bay. The lack of supply has lifted real estate prices. The median price for a single-family house in Santa Clara climbed 5% annually to $1.8 million in August, according to Compass.
“There’s been very little supply,” Rosdail said, “The costs for single-family homes have gone up. There are just so few on the market that are desirable.”
Traditional buyers are challenged further by the increasing number of all-cash buyers. The percentage of all-cash buyers in Santa Clara, for example, rose to over 28%, an eight-year high, according to Compass data.
“For me, the definition of ‘desirable home’ kind of changed,” Lo said. “There’s desirable in terms of white picket fence, backyard, and beautiful home, and then there is desirable in terms of [a home] that fits in the income bracket.”
“If anything, we’re in [a place] where we’re looking for more compromises,” Lo said.
The volatility of San Francisco
Not all homes are seeing a positive trend; the most notable exception is high-rise condos in downtown San Francisco.
“San Francisco is a very dense and complicated place. There are two very different things going on,” Rosdail said. “The prices for single-family homes have gone up, there’s so few on the market that are desirable.”
As for condos in downtown San Francisco?
“We could show 20 places,” Rosdail said.
Recent tech layoffs and rising street crime have pushed away potential buyers. The six month-rolling median downtown condo price declined from over $1.1 million in 2019 to below $900,000 this August, a level last seen in 2014, according to Compass data.
“A lot of them are second homes,” Rosdail said. “They became undesirable during the pandemic because the only reason you’d want to live right downtown is to get to work.”
Many tech firms were more than ready to embrace remote working when the pandemic started, causing much of San Francisco’s offices to sit empty since then. CBRE data shows office vacancy reached 31.8% in Q2 2023, a new record for the already struggling city.
In San Francisco County, most populous in the Bay Area by density and includes downtown San Francisco, home prices declined 10% annually in August, recording 14 consecutive months of year-over-year loss that started in June 2022, Compass report shows. But like elsewhere in the Bay Area, Carlisle expects that to change.
“Single-family homes were down 20% year over year in San Francisco earlier this year. But now that decline is quickly declining and should soon turn positive,” Carlisle said.
While San Francisco houses recorded an annual 10% loss in August, the decline has been decelerating since April, when prices fell 20% year over year.
“I think people are drawn by the vibrant energy, whether it’s family, work, or the Golden Gate Bridge,” Lo said. “There’s a novelty to San Francisco.”
“It’s the loveliest city on Earth,” Rosdail added.
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
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