Bay Area home prices dropped in July. Is this the end of the COVID buying spree?

“The market is kind of normalizing after having been just so imbalanced for such a long time,” said Jordan Levine, the association’s vice president and chief economist. “We do expect that the pace of home sales and the price of home sales will moderate.”

The median cost of a single-family home in the Bay Area dipped 3.6% in July compared to the previous month, the report found, and prices declined or plateaued in all but two of the region’s nine counties. The number of homes sold last month compared to June dropped significantly in several counties, including a 26% decline in Napa County and a 21% dip in San Francisco.

The biggest regional price drop in July was a 7.7% decrease in Sonoma County, to a median $761,700 sale price, followed by a 7.3% dip in San Mateo County to $2.1 million. Prices dropped 5% in San Francisco, to a median $1.9 million, and stayed flat in Alameda County at $1.3 million.

Still, all price changes are relative in one of the world’s most expensive housing markets. July’s Bay Area home prices were still 24% higher than the same time last summer. And while the pandemic changed the dynamic in many local housing markets, California home prices have long been boosted by more systemic factors like restrictive zoning laws, uneven property taxes and a consistent lack of new housing.

Linda Ngo has seen how these cycles play out before. The Coldwell Banker real estate consultant grew up in Marin and found herself at the center of the exodus from San Francisco last year, when Millennials and other clients were moving out of the city and into homes with offices and outdoor space in Oakland, Marin, Livermore and beyond.

In the last few months, she’s seen another shift. Where homes in Marin were regularly going for 15% or more over the asking price as recently as this spring, many are now going for more like 5% over. It was rare a few months ago to see houses last more than about a week on the market, but some are now available for 20 days or more.

“I am seeing that demand soften a little bit,” Ngo said. “Now that companies are talking about having their employees come back to the office part time, people are realizing that maybe they do need to go back to the city.”

Across California, demand for houses continues to outpace the supply of homes for sale, with 70% of homes sold last month going above the asking price, the California Association of Realtors report found. Another recent analysis by mortgage site HSH.com concluded that it takes an annual income of $254,532 in San Jose and $208,015 in San Francisco to afford the average mortgage — far more than the $129,444 needed in San Diego or $86,833 in Portland.

All the housing competition in recent months has also highlighted glaring inequities in the Bay Area market. Backlash to homeless encampments and concern about renter evictions are both hitting a boiling point as emergency pandemic programs wind down. Some people who already own homes have also spoken out about problems like potential racial bias in determining the value of a house.

One thing Levine will be gauging in the coming months is whether more homes go up for sale months, and if familiar seasonal buying patterns — busier in the summer, calmer in the winter — return after being derailed during pandemic shutdowns. One wild card, he said, is what may happen with the rise of the delta variant of the coronavirus.

“It seems like every time the public health numbers get worse, folks get more interested in housing,” he said. “Those suburban markets in particular start to punch above their weight.”

Ngo said she’s still seeing a “domino effect,” where former San Francisco dwellers move to houses in places like Oakland and help boost the prices there, in turn encouraging existing homeowners to sell and take the proceeds to more affordable places like the Sacramento area.

Lately, Ngo has also been seeing more interest from investors as ordinary home buyers grapple with fatigue from unfruitful searches. Some are just waiting to see what happens, hoping there’s still a bigger dip to come.

“A lot of people think there’s no way this market can keep going like this,” Ngo said. “But I think they’re wrong.”