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Outlook: 5 Bay Area Housing Market Predictions for 2021

December is days away, and before long we’ll be tacking up our 2021 calendars. That means some Bay Area home buyers are thinking of postponing their purchases until after the holidays. And a lot of them share the same questions.

  • What will the Bay Area real estate market be like in 2021?
  • What can home buyers expect next year?
  • Will it be “more of the same,” or something new?

While no one can predict future housing trends with complete accuracy, we can make some educated guesses based on current conditions. With that in mind, here are five data-based predictions for the Bay Area housing market in 2021.

Bay Area Housing Market Predictions for 2021

Low inventory will continue to be a challenge for many home buyers. Mortgage rates could inch upward, but will remain low by historical standards. Home prices will probably continue to climb in most Bay Area cities, but to varying degrees. Those are some of the key predictions for the San Francisco Bay Area housing market in 2021.

1. Low inventory will make things harder for home buyers.

Low inventory. Short supply. Housing market constraints.

If you’ve been researching the Bay Area real estate scene lately, you’ve probably encountered these and similar phrases.

It’s true. Inventory levels within the Bay Area housing market are very low right now. In some cities across the region, housing supply is running at record lows. So it’s not much of a stretch to predict that this will remain a factor in 2021 as well.

In a recent forecast for the broader California housing market, the state’s Realtor association said that “supply constraints will continue to be an issue next year and may put a cap on sales growth in 2021.”

Over the past year or so, housing supply has declined in eight of the nine counties that make up the Bay Area. San Francisco County (basically the city of San Francisco) was the one exception to that trend. Inventory actually rose within the San Francisco real estate market, mainly due to a COVID-related mini “exodus.”

But in the other eight counties, inventory levels are lower today than a year ago.

Predictions for the Bay Area housing market in 2021 suggest a continuation of this trend. After all, we’re only about five weeks from the end of 2020. So it’s only logical that the current supply shortages will carry into next year.

Inventory conditions could make things challenging for home buyers in 2021, as they have over the past year. If you’re planning to buy a house in the Bay Area next year, be sure to give yourself plenty of time. Flexibility goes a long way, as well. In a tight market, it’s rare to get everything you want in a house. So be willing to make compromises.

2. Home prices should keep rising in most cities, but at a slower pace.

Home prices in most Bay Area counties rose steadily throughout 2021, with one exception. San Francisco. (Noticing a pattern here?)

The biggest year-over-year price gains have occurred within Alameda, Contra Costa and Santa Clara counties. But most cities across the region have posted home-price gains to some degree, since the start of 2020.

Related: Can I afford to buy in the Bay Area?

Again, San Francisco proper is the notable exception. According to data compiled by the California Association of Realtors, or C.A.R., the median sale price for existing single-family homes in San Francisco dropped by -1.5% from October 2019 to October 2020.

All other Bay Area counties posted home-price gains during that 12-month period, some entering double digits. The median sale price in Contra Costa County, for example, rose by nearly 16% during the one-year period from October 2019 to October 2020.

So here’s another Bay Area housing market prediction for 2021. Home prices in most cities across the region will continue to climb over the coming months, with the possible exception of San Francisco.

With that being said, we probably won’t see the level of gains next year that we saw in 2020. Home prices are expected to rise more slowly within the Bay Area real estate market, as we move into 2021.

To quote the November 2020 C.A.R. report mentioned above:

While home prices rose sharply in 2020 … the pace of price growth will be more moderate in the coming year … The uncertainty about the pandemic, sluggish economic growth, a rise in foreclosures, and the volatility of the stock market are all unknown factors that could keep prices in check and prevent the statewide median price from rising too fast in the upcoming year.

3. Mortgage rates could creep upward in 2021, hovering around 3%.

We’ve written an entire blog post about mortgage rate predictions for 2021. So there’s no reason to belabor the point here. (Read the linked article for deeper insight into this topic!)

The big story here is that mortgage rates are incredibly low right now. We’re talking 50-year record lows. The average rate for a 30-year fixed mortgage loan sank to an incredibly low 2.72% during the week ending on November 19, according to Freddie Mac.

That’s where we are right now. But in 2021, rates are expected to inch upward a bit. As we wrote in the article mentioned above: “A recent forecast for mortgage rates in California and nationwide predicted that the average rate for a 30-year fixed mortgage loan would hover around 3% for most of next year.”

4. Migratory patterns could increase housing demand in suburban areas.

Over the past few months, there has been much ado about people leaving crowded, compressed cities for more suburban and rural areas. And the data seem to support this idea.

We talked about the increase in listings in San Francisco, as some residents have relocated to more spacious neighborhoods. Similar trends have been seen elsewhere.

Last month, Realtor.com’s senior economist George Ratiu told Forbes:

“Real estate markets have undergone noticeable shifts since the start of the coronavirus pandemic … Based on realtor.com surveys of consumers, we learned that home shoppers are looking for more space, quieter neighborhoods, home offices, newer kitchens and access to the outdoors, traits which have revived a strong interest in the suburbs and smaller metro areas.”

While this could be a temporary trend, it certainly affects the housing scene. Bay Area real estate market forecasts and predictions for 2021 suggest we could see more of this next year, with buyers choosing suburbs and even rural areas over crowded urban centers.

There’s also evidence of people moving from San Francisco’s crowded neighborhoods to more spacious digs in the East Bay. This comes at a time when inventory within the East Bay housing market is very low. (See related forecast for the East Bay.)

5. Demand for homes (and sales activity) will remain strong in 2021.

Here’s a final prediction for the San Francisco Bay Area real estate market in 2021. Low mortgage rates, combined with an uptick in migration and relocation, will continue to boost housing demand well into next year.

For supporting evidence, we need look no further than recent sales trends. According to C.A.R., home sales across the state of California rose by about 20% in October 2020, compared to a year earlier. Clearly, the ongoing coronavirus pandemic hasn’t had much of an impact on home buyer demand.

Disclaimer: This article contains predictions for the Bay Area housing market, extending into 2021. Such projections are based on trends that are constantly changing. They are the equivalent of an educated guess and should be treated as such.

Mike Trejo

Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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