Bay Area home prices are officially declining

The latest data from home listings website Zillow shows that home values have started cooling in the Bay Area for the first time since the start of the pandemic. There was a slight month-over-month decrease in typical home values from May to June for five out of the top 50 largest metro areas: San Francisco, San Jose, San Diego, Austin and Seattle. Matt Kreamer, data spokesperson for Zillow, said the main theme among these areas is affordability.

“These areas are either among the most expensive places to buy, or have seen some of the largest home value increases over the past two years,” he wrote in an email. “Because the combination of home price growth and the recent rise in mortgage rates are pushing monthly payments past what many buyers can afford, you’re seeing inventory gains in these markets and competition among buyers ease the fastest.”

Meanwhile, Redfin data shows similar trends as the real estate listings site lists five California cities among its “fastest-cooling housing markets.” San Jose (1st), Sacramento (2nd), Oakland (3rd), Stockton (5th) and San Francisco (10th) made up half of that top 10 in a report by Redfin. The site ranked markets based on year-to-year price growth, price drops, supply, sales, and home-sales speeds from February to May.

Zillow’s data attempts to reflect a typical home’s value in zip codes across the country. Home value estimates are not only based on the prices of recently sold homes, but rather estimate the value of all homes within a zip code based on the selling price trends of similar homes in the area.

The Bay Area was overrepresented in the rankings because the jump in mortgage interest rates, rising inflation and stock market turmoil priced out more prospective buyers in a region already notorious for its high housing costs, according to Redfin analysts.

Zillow data shows the San Francisco metro area had a slight decline of 0.1% in home values, from $1,494,103 in May to $1,492,535 in June. The metro area consists of Alameda, Contra Costa, San Francisco, San Mateo and Marin counties.

Before that, San Francisco home values had been increasing since the beginning of the pandemic, only dipping briefly in April through June of 2020 when Kreamer said the housing market came to a “brief halt” due to the “uncertainty surrounding the economy as a whole, and the logistics involved in buying, selling and moving.”

“But then it quickly picked up to the record pace we’ve seen since then,” he said. “Expensive coastal markets like the Bay Area and Seattle do tend to follow similar trends in general.”

The San Jose metro area, which includes Santa Clara and San Benito counties, saw a 0.77% month-over-month decline in home values, from $1,692,646 in May to $1,679,555 in June, according to Zillow data.

San Jose, which topped Redfin’s rankings, saw a 21% decline in home sales compared with last year and a 9% rise in listings with price drops.

Sales also declined in Oakland (by 16%) and San Francisco (14%).

Places that lured many Bay Area and California residents during the pandemic — such as Boise, Idaho; and Austin, Texas — also made Redfin’s top-20 rankings. Still, all of those cities saw a year-to-year growth in home prices during this time span.

Zillow data shows that Austin home prices have reversed course in recent months, dropping 0.5% from $596,547 in May to $593,537 in June.

In Sacramento, where the median home price is $610,000, a seasonal bump in listings and lower demand driven by higher borrowing costs have resulted in a roughly 40% increase in inventory compared with last year, according to Redfin figures.

Erin Stumpf, a broker associate with Coldwell Banker and president of the Sacramento Association of Realtors, said she’s seen noticeable shifts in buyers’ behaviors since mortgage rates surged in mid-June.

Listings that would have attracted 10 offers just a few months ago now yield about two or three competitive bids, Stumpf said. As demand slows, bidding wars have become less common. Buyers are more cautious and more likely to hold firm on attaching strings to their offers — such as appraisal value and inspection-related contingencies — that were commonly waived in months prior.

“The buyers have a little bit more leverage. They don’t have to be as accommodating or give up quite as much on the front side that they may have had to to get into contract six months ago,” Stumpf said.

Buyers who can afford it might have an opportunity to purchase a home at a lower price with a less crowded buyer pool, though rising borrowing costs can drastically affect purchasing power in the pricey Bay Area.

For example, the monthly mortgage payment on a $1.6 million home — San Francisco’s median sale price — with a 6% interest rate and a 20% down payment would cost nearly $2,300 more than it would have in January, when interest rates averaged 3%.

Consumer prices jumped 9.1% in June, the Bureau of Labor Statistics reported Wednesday, which could result in higher mortgage interest rates as the Federal Reserve attempts to tame inflation — and further cool housing markets.

A cooldown could result in lower home prices in the near term “correcting for the price growth that we saw in the last few years,” Daryl Fairweather, Redfin’s chief economist, said. Still, low inventory means “the long-term outlook is still that home prices will continue to go up,” she said.

The last time there was a significant slump in the Bay Area housing market was during the financial crisis of 2008.

“This is definitely a different situation,” Kreamer, of Zillow, said. “What we’re seeing now is the start of a rebalancing of a market that we’ve been saying was unsustainable. If you compare what’s happening now to what was happening three months ago, it’s slowing. But if you compare it to 2018 or 2019, it’s red hot.”

 Bay Area home prices are officially declining

A home for sale in the Bushrod neighborhood of Oakland.

Jessica Christian/The Chronicle

And while inventory is going up, it’s still “historically low” as pandemic impacts such as remote work have kept demand high.

“There are huge numbers of people waiting to buy when they are able, and that demand isn’t going away,” Kreamer said. “We’ll see things soften until the market gets to a place where the buyers who have been priced out can jump back in. The big unknown is how much things have to slow before that happens.”

Andrea Gordon, an East Bay real estate agent with Compass, has seen lower attendance at recent open houses and fewer offers on homes.

While listings in some hot neighborhoods, such as Oakland’s Rockridge, are still near certain to yield several offers quickly, others with no obvious perks are sitting longer, Gordon said. Buyers who realize that competition has cooled are putting contingencies back into their offers. And the practice of artificially underpricing a listing with the expectation buyers will bid the price up by hundreds of thousands of dollars has become far less common.

Those shifts and buyers’ heightened scrutiny signal that “things are returning to what has, in the past, been what the market has looked like,” Gordon said.

Kellie Hwang and Ricardo Cano are San Francisco Chronicle staff writers. Email:, Twitter: @KellieHwang, @ByRicardoCano

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