The Bay Area housing market seems to have an unshakable resilience, with prices rising despite pandemics, remote work, tech layoffs, out-of-state migration, and a high cost of living. The trend persisted in 2024, as home prices climbed even in the face of high interest rates. Here are my insights on where we have been and where we are headed.
First, a recap of 2024:
- Median sale price increased 9% year-over-year
- Strong stock market performance for local tech companies boosted purchasing power for many buyers
- Santa Clara County home prices hit all-time highs – the median price for single-family homes and townhouses rose 9% year-over-year, while condo prices remained flat
- Low inventory drove competitive bidding – the average sale price was 5% over the list price
Looking Ahead: Sales volume will drive pricing.
For the past two years, sales volume has been well below historical averages as many homeowners held onto their low mortgage rates from the pandemic era—commonly referred to as the "lock-in effect." With fewer homes available, prices remained strong.
However, people can only delay moving for so long. Life events—job changes, growing families, downsizing—eventually bring sellers to market. A key indicator of this shift is the declining percentage of outstanding mortgages with rates below 4%, which peaked at 65% in early 2022 and fell to 55% by late 2024.
If more homes come on the market, it could ease upward price pressure—unless buyer demand keeps pace. Based on early 2025 activity, I anticipate sales volume will move closer to historical norms. However, I expect demand to continue to outstrip supply, keeping the market competitive. Ultimately, the housing shortage remains a dominant factor, and a return to more typical sales volume will not be enough to shift this dynamic.
Here are some early data points which are informing my outlook:
- New listings are up 21% compared to January 2024.
- My stager has seen the most demand he has ever seen in his 11 years of staging and is booking out 3+ months (an indicator of listings coming to market this spring).
- I am seeing 10+ offers come in on properties and non-contingent terms in what is normally a quieter month.
Based on the factors above, I expect home prices to rise in the low-to-mid single digits this year.
What about mortgage rates?
The 30-year fixed mortgage rate is currently 6.95%, still below the long-term historical average of 7.7% but well above the ultra-low rates of a few years ago. A return to pandemic-era rates is unlikely. The Mortgage Bankers Association projects a slight decline to 6.5% by year-end 2025 and 6.4% by year-end 2026.
For buyers, securing a rate below 6% would be an excellent opportunity.
Other Factors to Watch in 2025:
- Stock Market Performance
Home prices in our region are closely tied to the S&P 500 due to the dominance of tech companies. A sharp stock market decline—whether from AI valuation corrections, rising interest rates, or political uncertainty—could negatively impact real estate. Conversely, if investors shift capital from equities into real estate, it would support home prices.
- Insurance Availability
The insurance landscape is becoming increasingly difficult, with major carriers limiting coverage in certain areas or for specific property types. The recent LA wildfires will intensify these challenges. Properties in wildfire-prone zones already face insurance challenges but may also face reduced buyer interest and pricing discounts. I always advise my buyers to obtain an insurance quote before submitting an offer.
Helpful Tip:
If you hold your real estate in a trust, consult with your insurance company because you may need to have your trust named as additional insured on your homeowner’s policy. Some claims arising from the LA fires are being denied or in dispute of being covered because the ownership structure as indicated on the title must match the named insured on the policy to ensure proper coverage. To avoid a dispute it is crucial to add the trust or LLC as an additional insured on the policy.
Thinking About a Move This Year?
Let us discuss your goals and create a strategy to help you achieve them. Schedule a meeting with Alexandra Sung today.
