Experts Weigh in on What's Next for the Bay Area 2023 Housing Market
It’s been quite a year for the Bay Area’s real estate market. After a hot 2021, 2022 also started out hot, but fizzled in the latter part of the year. As interest rates went up, stock markets became fickle while tech layoffs continued. This meant that the Bay Area housing market started to contract for the first time in a long time.
As reported recently in the SFGate, one report said that the Bay Area metro is not the least affordable housing market in the nation anymore. The rental market remained fairly steady, staying below pre-pandemic levels and showing zero signs of reclaiming its title of the most costly market in the country.
If last year’s forecasting taught us anything, it’s that markets can change, even within a year. We spoke with Bay Area economists, realtors and data analysts to understand what they believe will happen in next year’s housing market.
It’s Finally, Maybe a Buyer’s Market
Bay Area homebuyers have been through several years of major competition, overbidding and the need to waive contingencies as it relates to writing an offer. However, the tides may be turning.
“There is more choice and less competition than there has been for many years, which means greater opportunities for buyers,” Compass Chief Market Analyst Patrick Carlisle said. “Pay less attention to, or even ignore, what sellers are asking for and make offers at the price you want to pay. Some beautiful homes, luxury and ultra-luxury houses and condos, are selling at large discounts off asking prices. A buyer who can close the deal currently holds the balance of power.”
Despite higher interest rates adding to the cost of a mortgage payment, the overall prices on homes may be lower. In a recent survey of real estate agents from real estate tech company HomeLight, just 30% of respondents said their market was a seller’s market in the fourth quarter of 2022. This is a major decrease from the 95% of agents who said they were in a seller’s market in the second quarter of 2022.
“That pressure [buyers] felt in 2021 that ‘I need to buy yesterday’ is gone,” East Bay real estate agent Anna Bellomo said. “Now they can go into the process a bit more calm and centered. I think that's a good thing.”
Affordability Remains Challenging
No one knows what will happen with interest rates in 2023, but several experts agree they don’t expect them to go up much, if at all. Unfortunately for the Bay Area, however, an interest rate around 7% could add thousands more to a mortgage a buyer may have expected last year.
“As we look to next year, we see the cost of borrowing remaining elevated,” Realtor.com Senior Economist George Ratiu said. “We see affordability being a challenge overall to the housing market.”
Ratiu said the lack of inventory is still an issue and won’t be resolved anytime soon.
“There are reasons to be optimistic about supply and price at the national level and less reason to be optimistic about that stuff in San Francisco,” Rob Warnock, research associate at Apartment List, said. “For a city and a region that is notoriously undersupplied in housing, we don't have that robust pipeline of new homes coming online in five to 10 years like the rest of the country.”
In other words, home buyers, especially first-timers, may keep being priced out.
“Because prices have reached such a high level, low mortgage rates were the saving grace that enabled people to buy a home in the region,” said Matt Kreamer, data spokesperson for Zillow. “Therefore, when mortgage rates rise substantially, demand and price growth drops off more in the Bay Area than anywhere else in the country.”
Condos Remain the Best Deal out there
Prices for condos in San Francisco’s downtown never recovered following the pandemic, and recent data shows a sad picture of the current market. Businesses in SoMa and the Financial District have closed down or relocated, tech layoffs continue, and interest rates remain high, which is why the condo market has dropped down to 2017 prices. For perspective, condos sat on the market for an average of 65 days in the downtown San Francisco neighborhoods, which is more than double what the home market saw between September and November 2022, according to Compass. San Francisco’s condo inventory is also more than double that of the city’s home market, with 5.6 months of inventory on the market.
Just 19% of condos sold for over the asking price from September to November, compared to 63% of San Francisco homes that were overbid.
“It is an excellent time for buyers to aggressively negotiate home purchases at prices well below those of recent years. This is probably especially true of the condo market. … There are deals to be made here for buyers with the financial resources and a longer-term view,” Carlisle said.
What Buyers are Seeking Hasn’t Changed A lot
Bellomo said buyers are still seeking extra space because of the continued availability of remote work; they want that coveted “Zoom room” if they can get it. Also, outdoor space is still highly valued. Even with the larger popularity of remote work, and therefore a need for closed-off spaces, open-concept homes are still preferred by buyers, according to the HomeLight survey.
Buyer inquiries about ADU potential on properties have gone up substantially in the last year, Bellomo noted, and she expects this to continue. Whether it’s for potential rental income, the desirable home office or a future space for aging family members, an accessory dwelling unit is top of mind, particularly in the East Bay.
Now is Possibly the Time to Find a New Rental
For those who are still renting in the Bay Area, it’s still a much better market than it’s been in years. While it’s still one of the most expensive places to rent in the country, prices are below where they were before the pandemic, and that’s probably not changing anytime soon in San Francisco.
Rob Warnock, research associate at Apartment List, said he’s not expecting to see major price increases in 2023, but this winter seems like a good time to find a new place.
“People that are looking to move, this winter is the time to do it,” Warnock said. “In a place like San Francisco, you’ll take any advantage you can get. … It’s a relatively tenant-friendly time to be looking for a new apartment.”
He does not agree that people no longer entering the housing market will raise rents substantially. “As the economy experiences inflation and people experience monetary tightness, moving is expensive, and people do less of that when there's less confidence in the economy,” Warnock said.
“Many tech workers left the Bay Area and haven’t returned; others lost income following widespread layoffs,” Apartment rental platform Zumper’s year-end report said. “... [New York is] so far ahead of the next most expensive cities of Boston and San Francisco that something seismic would have to happen to unseat New York.”
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