The San Francisco Bay Area housing market is cooling fast in 2022, according to a recent report from the national real estate brokerage Redfin.
The company analyzed housing supply, demand, and pricing-related factors in major metro areas across the U.S. They then ranked these metro-level real estate markets to determine which ones were cooling down the most in 2022.
Among the nation’s 100 largest metropolitan areas, San Francisco, Oakland and San Francisco were among the fastest cooling real estate markets in 2022. San Jose came in at #1 (not surprising). Oakland was #3, and the San Francisco Bay Area housing market was #10.
Bay Area Housing Market Cooling in 2022
This is just the latest in a series of real estate industry reports that suggest (with plenty of evidence) that the Bay Area housing market is cooling down in 2022. And it needs to slow down.
Over the past couple of years, home prices in the San Francisco Bay Area have surged to record heights. This has worsened affordability issues and created a bubble-like scenario. So, at this stage, a cooling trend within the Bay Area real estate market could be viewed as a positive trend.
And that’s what appears to be happening.
According to the July Redfin report:
“Five of the 10 U.S. housing markets that have cooled fastest this year are in northern California — San Jose, Oakland, San Francisco, Sacramento and Stockton — and three of those five are in the Bay Area. All 10 of the housing markets cooling fastest are in the American West.”
So why is the Bay Area housing market cooling down so much in 2022? And what could it mean for home buyers in 2023? Let’s take a deeper dive!
Why the Real Estate Market Is Slowing Down
The San Francisco Bay Area real estate market is slowing down for a number of reasons, many of them cost-related.
The short version is this: Housing costs have risen substantially across the region, so there are fewer buyers lining up to purchase homes. This reduction in demand has had a cooling effect on cities all across the nine-county region.
Here are four reasons why the Bay Area housing market is cooling down in 2022:
- Higher mortgage rates. Mortgage rates nearly doubled during the first half of 2022. The average rate for a 30-year fixed mortgage climbed from around 3% to nearly 6% from January to June of this year. This in turn has increased the monthly mortgage payments for home buyers, causing some would-be buyers to shy away from the real estate market altogether.
- Higher home prices. The median home price for the San Francisco-Oakland-Hayward metro area has nearly tripled in the past ten years (as of summer 2022). It rose by nearly 20% during 2021 alone. Higher home values have shrunken the pool of qualified home buyers, leading to a reduction in demand — and a rapidly cooling Bay Area real estate market.
- Inventory growth. As we reported earlier this month, housing inventory in the Bay Area is finally starting to rise. There are more homes coming onto the market, after many months of record-low inventory levels. We still have a ways to go before we reach any kind of “balance” in the local real estate scene. But these latest trends are a move in that direction. If supply levels continue to rise, it could have a cooling effect on the Bay Area housing market through 2022 and into 2023.
- Economic worry. In times of economic uncertainty, consumers tend to be more wary about making large purchases. And for most people, a house is the biggest purchase of all. Economic worries have piled up in recent months, with concerns over inflation and a possible recession topping the list. This too could cause the Bay Area real estate market to slow down from its formerly frenzied pace.
What It Means for Home Buyers in 2022 – 2023
So what does all of this mean for home buyers in the latter part of 2022, and into 2023? Could a cooling Bay Area real estate market tip the scales in favor of buyers for a change?
Here’s our view:
While we probably shouldn’t expect to see a true buyer’s market any time soon, the Bay Area real estate scene is clearly moving in a more buyer-friendly direction.
Going forward, house hunters in the area should have more properties to choose from, compared to those who purchased during 2021. The overall pace of the market has changed as well, with fewer and fewer bidding-war scenarios. Overall, there’s less urgency.
We’ve also seen an increase in the number of price reductions within the market. This too is a sign of a cooling real estate scene. It means that buyers could have more negotiating leverage over the coming months, as sellers feel the pressure of inventory gains.
Home prices, meanwhile, continue to climb in many (if not most) Bay Area cities. So buyers who delay their purchasing plans until later this year or 2023 could pay a price for it — literally.