After median home prices in two Bay Area counties shot past the $2 million mark earlier this year, buyers might be forgiven for thinking the local real estate market had reached its peak.
Yet prices kept climbing across most of the region last month despite stubbornly high mortgage rates, a potential preview of the traditionally busy summer homebuying season now underway.
For the entire nine-county region, the median single-family home price hit $1.46 million in May, according to the California Association of Realtors. That’s a 12% spike from a year ago and a 1% increase from April — closing in on the record $1.5 million median price set in April 2022, just before rising interest rates sent monthly home payments soaring and listing prices crashing to Earth.
Now, many house hunters who had been hoping for rates to come back down are biting the bullet and buying homes. Prices, in turn, have been rebounding for months.
“People are realizing we have a new normal,” said Oscar Wei, an economist with the realtors association.
Home prices in the South Bay and on the Peninsula saw the biggest jumps, even after cresting $2 million this spring.
San Mateo County’s median price climbed to $2.4 million, a 16% increase year over year, a 12% boost from April and just shy of the all-time record, $2.401 million reached in April 2022. Meanwhile, Santa Clara County’s price reached $2.1 million, a 17% year-over-year rise and a 5% gain from April.
Jim Hamilton, former president of the Silicon Valley Association of Realtors, said he continues to see multiple offers on many properties. That’s primarily because in the uber-wealthy tech capital, buyers are better equipped to absorb the higher interest rates. The market for high-end homes over $2 million is particularly strong, he said.
“Silicon Valley is its own economy,” Hamilton said. “You cannot compare Silicon Valley to the rest of California. You will continue to see that demand out there.”
Should that demand follow historical trends and pick up even more during the summer months, he said prices could continue rising as the number of new homes for sale remains tight.
“We may see even more pressure on the market,” Hamilton said.
The housing market was not quite as hot in the East Bay, where prices rose from last May but remained about flat on a monthly basis.
Chart showing the increase in median home sale prices by county for an existing single-family home.
Alameda County’s median price jumped 9% year over year to $1.38 million, while Contra Costa County’s price grew 6% to $942,500. In San Francisco, the median was up just 2% from last year, at $1.7 million.
David Stark, with the Bay East Association of Realtors, said many neighborhoods across the East Bay still saw double-digit price spikes last month. For example, the median price rose 15% from last year in suburban Orinda to $2.3 million and 14% in the island city of Alameda to $1.45 million.
“It’s encouraging for buyers to see some price stabilization, but the fact that buyers are still willing to participate in the market speaks to the desire for homeownership in the East Bay,” he said.
Across the Bay Area, total home sales increased 4% in May, bucking the statewide trend showing a 6% decline.
The increase came even as sellers continued to put relatively few homes on the market. According to the real estate agent’s association, it would’ve taken just two months to sell the remaining homes still on the market at the end of May. A real estate market is considered balanced with four to six months of inventory.
The reason for the shortfall? While buyers may have grown accustomed to the higher rates, many sellers have not. Especially those unwilling to give up the sub-3% mortgages they locked in during the peak of the pandemic home-buying boom.
“You have people who are literally hanging onto houses that wouldn’t have before,” Hamilton said.
But mortgage rates have started to drop in recent weeks, on signs of cooling inflation and expectations that the Federal Reserve could soon cut the economy’s benchmark lending rate.
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The average rate on a typical 30-year home loan fell to 6.87% this week, down from 7.22% in early May, according to Freddie Mac. The average rate for a 30-year jumbo mortgage, which is typical for more expensive homes, was 7.17%, dipping from 7.26% early this month, according to Bankrate.com, a personal finance site.
Wei with the realtors association said he expects rates could fall to around 6.5% by the end of the year, with fluctuations along the way.
Even a modest continued rate drop would be welcome news for many home seekers. But Wei noted that it could also mean more competition in the market, leading to higher prices heading into the warmer months — potentially surpassing the $1.5 million record.
“You will continue to see the increase in price for the next few months before coming back down,” he said.
