Did you see the headline news in the San Jose Mercury a few days ago? It sure caught my attention: Bay Area Home Prices Spike 17% in March.
Say what? It seems the Mercury didn’t get the memo, which is that “sky high” mortgage interest rates, tech sector layoffs, and a looming recession have put an end to the ebullient Silicon Valley real estate market.
That’s the narrative from a wide assortment of talking heads that have been doing their level best for months to convince everyone that the real estate market is in for a major “correction.”
There is no question that the Bay Area real estate market has been on quite the roller coaster ever since the COVID lockdown started back in March of 2020…remember 2020? Good times, good times…!
However, I think the same can be said for most of the United States. But from what I hear, the coaster cars in much of the country are still hurtling down the slope, while here in the Bay Area, it looks as though Bay Area home prices may be rocketing back up again.
Granted, we are well below the median home prices we saw last year in March of 2022, when the median home price record shattered like plate glass in an Apple Store smash-and-grab.
But Bay Area home prices are not down so much as one might reasonably expect due to the fact that borrowing costs have essentially doubled over the last year. And, given this incontrovertible fact, the question so many people are asking is: how is it possible that home prices remain so resilient?
Nobody knows for sure, but I have some ideas. One is that actually, buyers could have paid a lot more than they did last year, when money was cheap – but they didn’t have to, because there was actually modestly more inventory available last year.
Also, a lot of people who wanted to buy last year didn’t do so – at first because the competition was simply too fierce, and then because many would-be buyers hopped onto the fence to see what would happen to prices (expecting they’d crater due to higher mortgage interest rates).
Now it seems that many buyers have concluded that prices aren’t going to go through the floor, and that life goes on – so they’re back in the market, along with all the “new” buyers we’d expect to see in this year.
Beyond that, I believe that there’s a strong demographic trend at play here. The Millennial generation – America’s largest, eclipsing even the Baby Boomers – is now getting to the age that they are finally moving out of their parent’s basements and forming their own families.
Household creation by this generation is really taking root, and these people have gotten to the point in their careers where they’re finally making enough money to buy homes of their own (with, perhaps, some down payment assistance from family Baby Boomers and Gen-X’ers).
Of course, Millennials live everywhere, not just in the Bay Area, so they don’t explain why the Bay Area real estate market in particular continues to outperform expectations.
Enter the American Growth Project, which is out with a new report ranking U.S. cities on their growth in 2022. Would it surprise you to learn that the San Francisco Bay Area leads the United States in growth, at 4.8% in 2022? And that the size of the Bay Are economy is now nearly $1.4 TRILLION and it accounts for 5.5% of the GDP of the entire USA?
Put another way, the GDP of the Bay Area alone exceeds that of the entire GDP of Australia ($1.32 trillion) and is just below Brazil ($1.44 trillion).
I can’t really say it surprised me, because I’ve lived here long enough to know that you should never bet against the Bay Area – or its housing market, or risingBay Area home prices. Like the saying goes: don’t wait to buy real estate…buy real estate, and wait.