Those brief months of the Bay Area’s retreat — sluggish home sales and lower rents during the early months of the Covid-19 pandemic — are long gone and unlikely to return any time soon.
Economists are expecting another strong real estate market in 2022, although they say it will have a hard time matching this year’s record pace.
Bay Area prices climbed 18% in November over the previous year in a busy market, according to the California Association of Realtors. The median price for a single family home reached $1.3 million — well above the state median of $782,000.
Jordan Levine, the association’s chief economist, said the real estate market has “just been characterized by incredible buyer demand.”
And the Bay Area looks poised to head into 2022 with few homes for sale, rising prices and more families looking to return to suburbs with an easy commute to their jobs. “A lot of folks want to go back into the office,” Levine said.
Rising home prices have been a jackpot for long-time owners, who are collecting double-digit equity gains simply by paying their mortgage. Renters and would-be buyers have struggled to save up more than $200,000 for a healthy down payment, leaving many workers in rentals or departing the area for less expensive locales.
Bay Area homes remain among the least affordable in the U.S. A decade ago, more than 4 in 10 Bay Area families could fit a home purchase into their budget. Today only about 2 in 10 families can.
The region’s strong market has mirrored this year’s national trends. Zillow called 2021 the hottest year on record for home values. U.S. prices climbed 19.5% from the previous year, with the median home price hitting $316,000.
“The big picture of the pandemic so far — it seems to have super-charged the housing market,” said Zillow economist Jeff Tucker. Relatively few homes for sale, demand for remote work space and low interest rates have combined to push prices to record highs. Zillow economists predict an 11% increase in home value next year.
The online broker’s most-searched destination this year was South Lake Tahoe. The typical Tahoe listing drew 5,500 viewers, an indication of the intense interest or dream-surfing about a new life in a resort town.
But Tucker sees more demand returning to big cities like San Jose, Oakland and San Francisco, as people re-discover the social and cultural benefits of urban life. “We’re seeing signs of a big revival of rentals in big cities,” Tucker said.
Zillow also expects housing booms in smaller, more affordable cities. It’s also predicting millennials and Generation Z workers in expensive regions like the Bay Area will buy vacation or investment properties before a primary home near their workplaces that could be beyond their budgets.
Several factors could disrupt the super-heated housing market next year. The Federal Reserve has signaled an increase in interest rates is coming, after years of hovering at record lows. The interest rate on a standard 30-year fixed mortgage is now 3.12%, up from 2.67% a year ago, according to Freddie Mac.
Levine sees the market slowing, but remaining favorable for sellers. As the state adds more jobs and gets closer to pre-pandemic work levels, demand for homes should increase. Statewide, CAR expects prices to rise 5% in the new year.
“Covid remains a wild card,” he said. So far, increased health threats since mid-2020 have translated into a more urgent rush to buy, particularly in outer suburbs and rural communities.
Another looming factor — how many new homes will be built with construction labor in short supply and the cost of materials and land escalating?
“The change has to come on the supply side,” Levine said. A few new state laws, including SB 9 which makes it easier for property owners to develop large single-family lots, should add some new units. But an analysis by UC Berkeley researchers estimated the new law, which goes into effect Jan. 1, would create only about 700,000 new homes and apartments over several years.
“I’m hopeful we’ll continue to make strides,” Levine said.