Here’s how Bay Area home prices are likely to change in 2024

Here’s how Bay Area home prices are likely to change in 2024

It’s been a roller-coaster year for the Bay Area real estate market.

In early 2023, home values were dropping in much of the region, with higher mortgage rates pushing prospective buyers away. Then the market started heating up again in the second half of the year, especially in the South Bay and East Bay.


And 2024 could bring another twist in the trends, industry experts said, with lower mortgage rates and more listings expected to make homes more affordable — though not everywhere, and not by a huge amount. The typical home value in the San Francisco metropolitan area is projected to drop to just over $1 million in November 2024, according to data from real estate brokerage site Zillow, down from $1.11 million in November 2023. “(Next year is) a big reset,” said Orphe Divounguy, senior economist at Zillow. “Things (are) kind of normalizing a little bit, maybe finding a new normal in the housing market.”


Mortgage rates may come down

The Federal Reserve Board raised its benchmark interest rates 11 times starting in early 2022 as it tried to combat rising inflation. Mortgage rates soared around the same time, from an average of below 4% to above 7%, according to Freddie Mac.


A line chart shows mortgage rates dropping from above 8% in 2000 to between 6% and 7% in 2004 to about 2018, before dropping again to below 4% around 2012 and even below 3% in 2021. But the Federal Reserve Board started raising rates in March of 2022, with rates now just below 7% as of mid-December 2023.

 Source: Freddie Mac

But with inflation indicators improving, and mortgage rates falling back just below 7%, many observers have expressed cautious optimism that rates will come down slightly next year. Daryl Fairweather, chief economist at real estate brokerage site Redfin, said she’s expecting the average mortgage rate to fall to about 6.6% next year, assuming current economic trends continue. “It’s an improvement,” she said, “but not a huge improvement.”

Now that rates appear to be reversing course, some buyers are already jumping back into the market. Val Steele, a San Francisco-based luxury real estate agent with Compass, said she and her colleagues have been surprisingly busy in December, despite sales typically being light in the winter. “I’m optimistic that this slight, little downturn in the interest rates has gotten the buyers off the bench,” she said.


Inventory will increase — slightly

The expectation that mortgage rates will decline in 2024 also has some predicting a jump in for-sale listings. The California Association of Realtors projects single-family home sales statewide will rise from about 266,000 this year to 327,000 next year, a 23% increase. That’s still a lower number than the count of 340,000 in 2022, however. While the Bay Area will likely see its inventory increase somewhat, Fairweather warned the number of new listings will vary depending on location. New listings are going up in the San Jose area, she explained, but they’re going down in San Francisco — a trend she attributes partially to the city’s struggling economy.

Homes could become more affordable

With the lower mortgage rates and the heightened inventory, Fairweather and Divounguy said national home prices will likely drop slightly. What that means for the Bay Area is less certain. Divounguy predicts that some prospective home buyers who were previously outbid might be able to afford a home next year. But those who find the region still too expensive might look elsewhere for sales. Typical values in the San Francisco metropolitan area will fall from $1.11 million in November 2023 to $1.05 million in November 2024, a 5.4% drop, according to projections from Zillow. Values in the San Jose metro area, which includes Palo Alto, Santa Clara and San Benito County, are expected to see even more of a decline, a 6.1% decrease from $1.46 million to $1.37 million. That’s the largest percentage projected drop among the 100 largest United States metro areas for which Zillow has data.


Typical home values in the San Jose and San Francisco metros have increased steadily since 2015, jumping and dipping during the pandemic. And while home values in SF have dropped over the past year and San Jose's have risen, they're both projected to drop in 2024 — to below $1.4 million for San Jose and just over $1 million for San Francisco.
And Fairweather believes that any affordability improvements next year will be fairly minor. Still, that’s a change from much of the past year. “This isn’t really going to change the game for housing,” she said. “But we’re coming off of a very difficult year, and so at least it’s not going to be an increasingly difficult year (for buyers).”

Labor, election could disrupt the market

Despite the somewhat optimistic predictions for housing prices, Divounguy said, the overall economy will face some challenges in 2024. Many finance companies are struggling to pay off their debts at current interest rates, he explained, which could lead to a slowdown in hiring next year. The 2024 presidential election could also make home buyers hesitant to make a major purchase, Divounguy added, as they wait to see the outcome of the race. “When people are uncertain about their future, they sit on their wallets,” he said.


Reach Christian Leonard: [email protected]


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