What to Expect in Bay Area Real Estate in 2022

I often look to the lifestyle of my children to help me understand changes that are on the horizon. So, when my youngest informed me that she was considering becoming a digital nomad when her lease is up, I started thinking about what the future might hold for the next generation of homeowners. As you might guess, this lifestyle is about deriving income remotely and online, rather than from commuting to an office. The key point for me was that it eliminates the need for a permanent home. This notion of locational flexibility is just one of a few emerging developments that I’m keeping an eye on as we enter the new year.

Locational Flexibility

It’s no secret that Oakland, Piedmont, Berkeley and their adjacent cities were major destinations for urban weary San Francisco residents in 2021. As office buildings shuttered and remote work went from temporary to permanent, hoards of young professional households migrated to our neighborhoods to find homes that would perform double duty as offices as well as residences. If we look at the volume of unit sales in 2021 as compared to 2019 (before the COVID impact), sales were up over 60%, pushing prices into the stratosphere.

On the other side of the equation yet at a much slower rate, inventory began to improve as untethered homeowners expanded their search for replacement properties to a larger geographic area. And then, through recent California legislative relief, certain property tax considerations were eliminated, enabling long term homeowners to make a move.

Updated Homes Will Be Rewarded

Homes that were well maintained and updated to contemporary tastes continued to perform far better than those that needed to be freshened up. As we enter the new year with construction costs at an all-time high and a continued shortage of materials and skilled labor, I expect the price gap between an updated versus a vintage home to expand as buyers place an even greater premium on properties that are not subject to the uncertainty of a renovation process. Potential sellers who want to maximize their returns should plan for a longer and more expensive preparation process.

Buyer Fatigue

Although over 50% of my buyers were successful at securing a home on their first offer in 2021, the broader market had less success. For every successful buyer, there were several who left empty handed. With inventory still low, I don’t foresee this changing in the first half of 2022. Should the stock market experience a correction or move sideways in relation to rising home prices, we could start to see a decline in competition as prices begin to outstrip affordability.

Crime

At the margin, rising crime is bad for real estate prices. This subject became a discussion topic as many of my clients compared our neighborhoods to other options in the greater Bay Area and beyond. With more flexibility in choosing a location to live, I expect to see crime rates have greater impact on buying and selling behavior in 2022.

What Should We Expect?

Here’s what I know to be fact. Home stagers are completely booked out through the end of the first quarter. This means that there are plenty of homes preparing for the market, which bodes well for spring supply.

COVID continues to keep people local, feeding the demand for changes in housing and home renovation. One’s “home” remains the most important element of daily life. The number of portable toilets makes it easy to see how much construction is occurring in our neighborhoods.

So, I expect 2022 to be a continuation of last year… tight competition for limited housing stock, slower and more expensive construction cycles and rising prices... basically a seller’s market. Fortunately, much of the knee-jerk reaction to the world’s changing circumstances seems to have moved through the system, opening the door to a less frenzied marketplace.

I wish you all a healthy and happy new year!