SAN FRANCISCO BAY AREA HOUSING MARKET

An Up And Down Year

The past year was marked by strong for-sale housing market conditions followed by a modest softening in the second half of the year. Driven primarily by the surge in mortgage rates, some buyers returned to the sidelines — interested in entering the ownership market yet wary of affordability and household finances. However, at the higher end of the pricing spectrum, buyer activity performed relatively better in the last year, particularly within prime neighborhoods.

Underlying Economic Strength

The regional economy remained strong even as headwinds such as elevated inflation, weakened consumer confidence and layoff announcements threatened to slow the expansion. The labor market is surprisingly strong, with the unemployment rate at 2.6%. In 2022, roughly 165,000 jobs were created throughout the region. The tight labor market continued to buoy household finances with strong wage growth across a range of industries. Government programs and subsidies for pandemic and inflation-related issues also helped consumers to continue to purchase discretionary goods and services.

SF Bay Area Job Creation

PACE OF SALES CALMS FROM RECORD-SETTING 2021

In 2022, more than 46,000 single family homes sold across the SF Bay Area, a decrease of roughly 26% from the previous year. It is no surprise that sales activity slowed from the record-setting pace of 2021 and returned to near 2020 levels. The low number of available homes available during the year likely would have decreased achievable sales totals in 2022 even if mortgage rates did not increase. The number of closed sales fell in all counties in the SF Bay Area, led by Sonoma County. The smallest decreases of roughly 20% were in San Francisco and Solano counties.

Price Tiers Behave Differently

The higher mortgage rates and decreased affordability hampered activity at the lower price tiers. Additionally, recent price increases have shifted many homes out of the lowest price tier. The number of homes sold for less than $750,000 declined by 31%, while sales in the $750,000 to $1 million range fell by approximately 25%. Though still lower than one year ago, sales of homes priced between $2.5 million and $5 million decreased by roughly 16%, much less than the decrease in the lower price ranges.

As more employers focus on the majority of days spent at the workplace rather than working from home, households made a choice to locate closer to workplaces in many cases, helping to bolster demand and pricing. The international buyer segment has yet to fully recover, with the strong dollar a deterrent for some potential buyers. While the importance of this segment varies by neighborhood, the lack of a recovery of international purchase activity helped produce the lower sales volume.

PRICES EASE IN SOME AREAS, INCREASE IN OTHERS

The SF Bay Area median price decreased toward the end of 2022, reaching slightly less than $1.1 million at year-end. This was off from the intrayear peak of $1.48 million in April. Though pricing was lower in most areas, bucking the trend were Solano and Sonoma counties where the median prices were flat when compared with the previous year end.

Additionally, highly desirable cities produced year-end pricing gains versus December 2021. In Alameda County, for example, where prices declined by roughly 12% county-wide, the median price increased by 4% in Alameda and more than 8% in Piedmont. Similarly, in San Mateo County where pricing was off by 15%, the median price increased in Atherton by more than 17%. In Marin County, the median price in Belvedere also increased in 2022. Throughout the SF Bay Area, prime neighborhoods, particularly those with access to desirable school districts, often outperformed other cities. In fact, when segmenting by median price, seven out of the top ten highest median-priced cities boasted price gains last year.

Further highlighting that pricing held up better in certain neighborhoods in 2022, by year-end the median price of a home sold in the $750,000 to $1.25 million and $2.5 million to $3.5 million ranges increased by roughly 1%. The median price in the less than $750,000 range fell by nearly 2% from the previous year. For homes that sold above the $3.5 million mark, the median price decreased by 2% to 3%.

Modest Increases In Inventory

For-sale inventory remained low even as absorption slowed, averaging 5,000 homes for sale in 2022. The range of number of listings per month was varied, with record-low inventory to begin the year and a peak of nearly 7,500 homes for sale during the summer months. The mortgage rate for most existing homeowners is lower than current rates, which deters a segment of potential sellers. Despite this, inventory increased modestly in much of the SF Bay Area. However, inventory decreased in Sonoma County and was flat in Napa County compared with the previous year.

Some Homes Taking Slightly Longer To Sell

By the end of the year, homes in the SF Bay Area stayed on the market for longer than at the beginning of 2022, though still less than the prepandemic period. For homes that sold in the last year, the average time on market was 24 days. However, during the spring, homes spent less than 20 days on the market, on average, which increased to more than 40 days by December. Counties with larger increases in time spent on

Average Days on Market

Frenetic Pace of Spring Market Moderates

Average Days on Market by County in 2022

Median Price

the market for closed sales included Contra Costa and Santa Clara counties, while the amount of time in Napa County was virtually unchanged.

Even with the increase in time on the market throughout the SF Bay Area, well-priced homes sold relatively quickly. Homes in less desirable neighborhoods, as well as those where seller expectations may be different than that of buyers, sat on the market for longer periods. These unsold listings, in part, drove the average of all homes still available on the market to more than 90 days. Additionally, vacation homes in some markets remained on the market for an extended period, leading the average time on market for active listings to increase to more than 100 days in

Sold Price as % of Original List Price

Marin, Napa, Santa Cruz and Sonoma counties.

Buyer Competition Eases

Though buyer demand persists, competition slowed into the end of the year as some potential buyers returned to the sidelines. Early in the year, multiple bids and closes greater than the asking price were often the norm. In the first half of the year, nearly 80% of transactions closed at greater than the list price. In the second half of the year, the share dropped to roughly 40%.

Looking Ahead

The last year highlighted the depth of demand for housing in the SF Bay Area as home values, number of sales and scarce inventory hit record levels early in the year. This past year also displayed the impact of higher mortgage rates, declining affordability and diminished consumer confidence on the housing market.

Despite the headwinds, the underlying demand for housing in the SF Bay Area should maintain a moderate pace of sales in 2023 though home prices may fall. Near-term economic issues such as a reduction in tech employment may reduce buyer competition but the attractiveness of ownership combined with the amenities and access to leading employers will maintain and attract new residents to the SF Bay Area.