The San Francisco East Bay is one of the hottest real estate markets in the United States. The majority of the East Bay is not technically part of Silicon Valley, but the East Bay real estate market is influenced by the Bay Area tech industry.  During the hottest real estate markets, home prices and the demand for housing is driven by professionals, highly paid technology workers, and business owners.  Many of them are now empowered to work remotely.  So, they move to the East Bay looking for more affordable homes creating demand for housing and driving higher prices in the East Bay.  Rising interest rates in 2022 shifted the East Bay real estate market.  

 

East Bay Home Prices

 

Most homeowners reading this article live in the East Bay, so we’ll focus primarily on East Bay real estate matters. The East Bay encompasses both Alameda and Contra Costa Counties and features many diverse cities offering amazing housing opportunities and easy access to both San Francisco and Oakland.  The East Bay experienced consistent growth in home prices, particularly from 2011 to 2022.

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Driven by massive job creation, significant demand for homes, and the availability of less expensive homes in the East Bay, the median home price skyrocketed.

 

By 2022, the typical single-family home surpassed $1 million in several East Bay cities. The high wages of tech workers and the demand for housing contributed to a near-perfect storm pushing prices to unprecedented levels.  COVID-19 contributed to a significant rise in home prices on the East Bay from March 2020 until May 2022.  People working from home moved to the East Bay seeking larger, less expensive homes that supported their new needs during and after COVID-19. This shows the growth in East Bay home prices between 2020 and 2022.  Additionally, some employers established offices in the East Bay easing the commute for some worker.  

 

Mortgage Interest Rates & East Bay Home Prices

 

The Federal Reserve, starting in May 2024, hiked rates to curb inflation.  Consequently, mortgage interest started to rise making it more expensive for buyers to finance homes. This served to discourage buyers and dampen the demand for homes in the East Bay.  We saw home prices in the East Bay fall in the second half of 2022 and into 2024 (Figure 2). 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Many homeowners who would have upsized or downsize chose to hold off because the interest rate on their new home would be much higher. Buyers with a home to sell are a major part of the market and their absence affected the 2023 and 2024 East Bay real estate market. It kept the number of listings low in 2023, but their disappearance had a greater effect on price.  The buyers with a home to sell are typically the strongest buyers and their absence affected the competition for homes in the East Bay and consequently home prices.  First time home buyers in the East Bay continue to be present and aggressive in the market but the higher mortgage interest rates reduce the buying power making their affect on demand and price much less potent.

 

Real Estate Inventory and East Bay Home Prices

 

The 2024 real estate market started with a bang, fueled by the hope of lower interest rates.  East Bay home prices in the first part of the year outperformed 2022 despite lower home prices in 2023. East Bay home prices were quickly muted in 2024 because the promise of lower interest rates did not materialize. The higher mortgage interest rates also served to reduce first-time home buyers in the market.  We did see some of the buyers with a home to sell leap into the market because they needed to move on with their lives. Limited first-time buyers and increased buyers selling a home resulted in the highest inventory we have seen since before 2021. Combined high inventory and high mortgage interest rates served to muffle East Bay home price in 2024.  

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Annual Real Estate Trends Effects on East Bay Home Prices

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The East Bay experiences a normal annual trend in home prices.  We can see from figure 4 that home prices tend to be lower in the 1st and 4th quarters of the year.  While home prices in the 2nd quarter tends to be the highest.  This is something that we see repeated year after year and is driven by the demand for homes at that point in the year.  The demand for mortgages mirrors the demand for homes and we see a similar pattern with mortgage interest rates.

 

East Bay Real Estate Market Forecast for 2025

 

We are anticipating a strong Real Estate market in 2025 notwithstanding unforeseen economic and social factors. The Feds have projected their intent to lower rates in 2025.  These lower rates may coax lower mortgages and higher demand for homes.  The higher demand will feed home prices. The California Association of Realtors (CAR) has forecasted a 4.6% increase in home prices and over a 10% increase in the number of homes being sold in 2025.  The increase in homes being sold will come from homeowners who have held off in 2023 and 2024 because of high rates.

 

Finally, is Housing Prices in the East Bay declining?  

 

We will see a decline in prices at the end of 2024 and the start of 2025.  That will be a great time for buyers to pounce.  We will see a recovery in 2025.  We will see East Bay home prices up in the 2nd and 3rd quarters.  They will fall in the last quarter of the year.  Home sellers and buyers can get the best price that the market will offer by paying close attention to the trends and intentionally striking at the right time.

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