Home prices are rising again in two Bay Area counties. Is it a sign of wider rebound?

After eight consecutive months of declining home values in each of the Bay Area’s nine counties, data shows that decreases are beginning to soften, and two counties even saw growth in March — indicating that the region’s real estate market might heat back up through the spring, experts said.

According to data from listings website Zillow, while home values in all of the 100 biggest Bay Area municipalities or Census-defined places are lower than they were both a year ago and six months ago, decreases from month to month are starting to shrink and for some are even reversing, which experts say is a sign of recovery.

“Monthly paces of price declines have really slowed down,” said Zillow senior economist Jeff Tucker. “We may very well be in the midst of a turnaround.”

Sonoma and Napa counties each saw their home values increase between Feb. 28 and March 31, rising by 0.2% and 0.1%, respectively — the first growth for any Bay Area county since June 2022.

Right behind them were San Francisco and Solano counties, each with a slight decline of 0.1% — a marked improvement over San Francisco’s 1.6% average decrease per month over the previous eight months. Solano averaged a 0.7% decline per month over that same period.

The Sonoma County cities of Healdsburg, Sebastopol, Sonoma, Cotati and Cloverdale each saw a rise of less than 1% in March, as did American Canyon in Napa County.

But the increases weren’t limited to Wine Country cities — Walnut Creek in Contra Costa County and San Bruno in San Mateo County also saw small upticks in home values in March.

That trend appears likely to continue in the coming months. Experts said that the spring and early summer months of April, May and June are the busiest in terms of home sales, which means that the real estate market might be starting to heat back up.

Real estate firm Compass also noted in its April 2023 real estate report that “conditions have improved considerably” in the Bay Area. And though the market “remains significantly weaker on a year-over-year basis,” its economists wrote, “it’s worth remembering that the market (at the beginning of 2022) was severely overheated, approaching the peak of a historic, 10-year boom.”

Year-over-year numbers, Tucker said, are “still telling the story” of the cool-down in demand in the real estate market in the Bay Area, particularly urban areas, especially as it relates to employment.

“It’s still part of the ramifications of this one-two punch — the rise of remote work, which Bay Area employers have embraced probably more than any other region, as well as the tech industry contraction.”

On top of that, expensive real estate markets tend to be more sensitive to increases in interest rates than other markets, Tucker explained, as even a slight increase in monthly payments can put buying a home out of reach for many.

That means that the spike in mortgage rates since March 2022 has had an outsized impact in the region.

“In San Francisco and other West Coast markets, those rising interest rates have not just been an unpleasant, budget-squeezing reality, but have broken the budget of a lot of potential home buyers,” Tucker said.

But the Bay Area also has a very low inventory of homes available to buy relative to its population, Tucker noted, which can mean there is still competition among a smaller pool of buyers.

Compass economists agreed, writing in their report that “the number of new listings coming on market continues to be extremely low, as many potential sellers hold off from listing their homes due to the doubling of interest rates since early 2022.”

“This constitutes a huge factor in market dynamics and is undoubtedly holding back sales activity,” it said.

“Low inventory and a low flow of new listings is almost like the Bay Area’s secret weapon against price declines,” Tucker said. “If we’re really in the midst of a sharp turnaround at the moment, I would mostly attribute it to that very low flow of listings.”

And the reason areas in Wine Country might be seeing a faster recovery comes down to why people are moving and what they are looking for, he said. Demand, for example, is coming from people looking to move for reasons other than just employment, whereas urban centers rely more on people moving for a job.

“There’s maybe more demand driven by pure amenity value. People really want to be in Wine Country,” he said. People who can work from home, he added, are moving out of the city in search of more space.

But that doesn’t mean the urban markets are still in the same place they were in the winter, he said. Homes around the Bay Area, including in cities like San Francisco and Oakland, are starting to see more bids and spending less time on the market.

“If a home shopper goes out there and is expecting the conditions they heard about on the news last winter or if they’re really focused on year-over-year price changes, and they think every seller will be happy to see them,” he said, “they’re in for a rude awakening.”

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