The San Francisco Bay Area was hit particularly hard by the housing crisis that came to a boil in 2008. It was also one of the first regions of the U.S. to rebound in the wake of that crisis.
Today, home prices are soaring and inventory is tight in many Bay Area real estate markets. This seems like a good thing on the surface. But we’re all young enough to remember what happened the last time Bay Area home prices were soaring. Hopefully, things will play out differently this time around.
This creates a quandary for those who are thinking of buying a home in the Bay Area in 2015. For most potential buyers, the overriding question is the same: Is 2015 a good time to buy a home in the San Francisco Bay Area? Will the timing work to my advantage?
Here’s an updated look at the many individual housing markets that make up this large and complex region of the U.S.
Bay Area Home Prices Rose Significantly Last Year
Is it good timing to buy a house in the Bay Area right now? There is no simple or single response to this question. After all, this region includes nine counties, seven metro areas, dozens of cities, and more than 7 million people. Real estate conditions vary from one city to the next, and sometimes dramatically.
With all of that being said, home prices rose steadily in most parts of the San Francisco Bay Area last year. And additional gains are expected in 2015, though experts are predicting they’ll be more modest than 2014. So on the pricing front alone, it seems that 2015 would be a good time to buy a house in the Bay Area.
Of course, real estate decisions are rarely made on price alone. There are other considerations as well, such as financing availability, personal budgeting, and the length of residence. Buying a home in the Bay Area requires soul searching, in addition to economic research. We can only help with the latter.
The housing economists and data crunchers at Zillow monitor home-price trends over time. They also provide forecasts and outlooks based on current conditions. The table below shows how house prices have changed over the last 12 months, in the seven metropolitan statistical areas that make up the San Francisco Bay Area. It also shows Zillow’s 1-year forecast for home prices, as well as their “market temperature” for each area (as of February 2015).
|Statistical Area||1-Yr. Change||1-Yr. Forecast||Market Temp.|
|San Francisco-Oakland-Hayward||7.3%||3.1%||Very hot|
|San Jose-Sunnyvale-Santa Clara||10.6%||3.7%||Very hot|
|Santa Rosa||9.9%||1.4%||Very hot|
|Santa Cruz-Watsonville||6.9%||3.1%||Very hot|
These metro areas share two things in common. Can you spot the common threads?
- For one thing, Zillow is predicting more modest price gains in 2015 when compared to the last 12 months — across the board.
- Additionally, all of these markets are currently labeled as being “very hot.” According to the company’s economists, this means that the sale-to-list price ratio, time on market, and other factors indicate a sellers’ market.
Sellers appear to have more negotiating leverage in all of these areas. Anyone planning to buy a Bay Area home in 2015 needs to understand this dynamic, and proceed accordingly.
Inventory Still Tight for Bay Area Buyers
Across much of the Bay Area, housing demand is currently outpacing supply. There just aren’t enough homes listed for sale to satisfy the current level of demand. This forces buyers to compete (sometimes fiercely) for limited inventory. It also tilts the market in favor of the seller, in terms of bargaining power.
While the inventory situation has improved over the last year or so, it will still remain tight in 2015. This is true across most of the Bay Area — but San Francisco is an extreme example. According to a report published by Realtor.com earlier this month, the number of homes listed for sale in the San Francisco-Oakland-Hayward metro area declined by 12.3% over the last year or so.
People buying a Bay Area home in 2015 could have far fewer options than those who purchased two or three years ago. A sign of the times.
Is This Real Estate Market in a Bubble?
I began this article with dark undertones of real estate bubbles and housing collapse. It begs the question: Is the Bay Area real estate market in a bubble right now? Are home prices currently rising at an unsustainable rate, and therefore heading for a collapse? That depends on who you ask.
KQED, the public media provider for Northern California, asked Christopher Thornberg. Mr. Thornberg is an economist and founding partner of Beacon Economics, a Los Angeles-based research and consulting firm.
His response: “This is not a bubble.”
According to Thornberg, the Bay Area is much less speculative than in the past:
“These are people with real money, with real incomes,” he said, referring to Bay Area home buyers in general. “They have enough money to live in whatever cities and neighborhoods they want, so if there’s not enough high-end housing, they’ll just gentrify lower-income neighborhoods.”
The Bottom Line
Those buying a home in the Bay Area in 2015 could face stiff competition from other buyers. It’s not the kind of market where you want to cool your heels and ponder your options (at least not for too long). Buyers who are seriously interested in a property will need to make a strong offer quickly, lest the home slip through their fingers. This is a harsh reality of the current real estate market across the Bay Area.
Based on home prices alone, 2015 is a good time to buy a home in the Bay Area. Economists and housing analysts expect house prices to continue rising in this region, for the foreseeable future anyway. But you can’t make housing decisions based solely on price. There are many other variables to consider as well.