Three years later, Bay Area home prices 28% higher than at start of pandemic (2024)

The Bay Area’s population is shrinking and more housing is being built, but local home prices remain sky-high in the latest report — about 28% above where they were when the pandemic first upended the local real estate market.

How can that be? The short answer: The Bay Area still lacks anywhere near enough homes to meet demand, even as high mortgage rates squeeze out would-be homebuyers. Until the region can add significantly more housing, prices will likely remain far out of reach for most residents.

While interest rates, tech layoffs, stock market fluctuations and recession fears have brought down the Bay Area’s median home price from a record peak of more than $1.5 million last spring, prices haven’t dropped as much as would be expected in a “normally functioning housing market,” said Matt Regan, a housing policy expert with the Bay Area Council, a pro-business group.

“But we haven’t had a normally functioning housing market for quite some time,” he said.

In April, the median sales price of existing single-family homes in the Bay Area ticked up month-to-month to $1.25 million, according to the California Association of Realtors. Compare that with $980,000 in April 2020, the month after the pandemic hit.

That 28% price jump over the past three years far outpaces the 15% increase expected based on long-term trends, said association economist Oscar Wei. Currently, just one in five Bay Area residents can afford the median single-family home price, according to the association.

Home values soared during the pandemic as house hunters — many untethered from the office by remote work and buoyed by historic low mortgage rates — were locked in a mad scramble for homes, sometimes bidding hundreds of thousands of dollars over the asking prices. And even as demand has cooled over the past year, mortgage rates have risen and prices have dipped, a severe lack of houses for sale has prevented values from falling all the way back down to Earth.

In fact, with the traditionally busy spring homebuying season now underway, the Bay Area’s median home price has been back on the rise in recent months, increasing 1.8% from March to April.

Wei said he would only expect home values to return to pre-pandemic levels if there’s a “deep recession” or developers build significantly more homes. “And that’s not going to happen overnight,” he said.

The Bay Area and California have long struggled to build enough housing, thanks to high development costs and some of the country’s strictest regulations on homebuilding. During the pandemic, public health restrictions slowed development even further, Wei said.

Last year, however, the state boosted its housing stock by 0.85%, the most new construction since 2008, adding more than 123,000 net housing units of all kinds. But that’s still just a drop in the bucket of the 2.5 million new homes officials say California needs to alleviate its housing shortage.

It’s not just that too few homes are getting built. Potential sellers are reluctant to put their homes on the market.

Many homeowners locked in mortgages before average interest rates spiked above 6% starting last year. Rates hadn’t been that high since 2008 during the Great Recession. And those homeowners are now reluctant to sell and give up their lower rates, often at around 3% or 4% — a difference of potentially thousands of dollars in monthly home payments.

The lack of homes is borne out in the data. By the end of April, it would have taken just two months to sell off all the remaining homes on the market, down from about three months in April 2020, according to the realtors association. A housing market is considered balanced if it has at least four months of supply.

“No seller is motivated to put their home on the market,” said Silicon Valley real estate agent Ramesh Rao.

Another factor that keeps supplies tight: “Well-compensated young people living in apartments” and fed up with sharing home offices with roommates are seeking out more living space and buying up homes in the suburbs, Regan said.

More people moving out on their own during the pandemic has shrunk the average household size across the state by 4% to 2.81 people per home, according to the Public Policy Institute of California. That, economists say, has helped drive demand for housing even as the state’s population fell 1.2% between 2020 and 2022. The Bay Area’s population, meanwhile, dropped about 3%.

For housing experts and advocates, that’s more evidence the state must double down on policies to add more homes.

“We’re going to remain a high-price, high-demand area,” Regan said. “We can moderate a lot of that by building our way out of the problem, and we’re making some progress, but not enough to make a big difference.”