BAY AREA CITIES have experienced some of the biggest drops in home prices across the country, according to a new study evaluating typical home values from May 2022 to May 2023.

According to the report by investment advising company SmartAsset, San Francisco was the largest city in the top 10 list for price reductions, with home values falling by 13 percent from 2022 to 2023. Palo Alto and Dublin saw similar declines. The company used Zillow Home Value Index data from May 2022 and May 2023 for single-family homes, condos and housing co-ops.

But the fall in prices isn’t necessarily a good sign. Housing inventory is still tight, and housing experts say the trend is instead due to a fall in demand, as people leave the Bay Area in search for a lower cost of living.

In a Zillow Home Price Expectations Survey polling economists and housing experts, respondents predicted housing prices to fall 1.6 percent through December 2023. The culprit, they said, is a lack of affordability and high mortgage rates driving down demand. Yet the respondents also expect to see housing prices rise 3.5 percent per year through 2027, which is the rate that prices grew in the ’80s and ’90s, a relatively stable time, according to the survey report.

Corey Smith is the executive director of Housing Action Coalition, a San Francisco-based nonprofit advocating for affordable housing. He has seen people leave the region due to housing costs, paired with new remote work opportunities.

“We prefer to see housing prices go down because of supply increases,” Smith said. “We need to be trying to build as much housing as we can so the supply increases are ultimately the things that drive down prices.”

Cheaper, but not affordable

Smith noted that despite the lower prices, housing is still out of reach for many people.

The typical home values for Dublin and San Francisco were about $1.27 million. The report says Palo Alto’s homes are “atypically expensive” for a smaller city. While the cost decreased by 12.82 percent over the year, the city’s typical price in May 2023 was still $3.16 million.

“It’s like, OK, great. We still have a long way to go to make it affordable for folks,” Smith said.

Out of the top 10 cities with lower prices, Oakland was the only one with a typical home value under $1 million. Its home prices fell by 12 percent in the past year to $814,053.

This trend comes after a period of rising housing prices. For instance, in two years from June 2020 to June 2022, the median single-family home price for the Bay Area increased 36 percent, according to data from the California Association of Realtors.

But the state is seeing some relief from the longtime trend of increasing prices.

As of June of this year, the California Association of Realtors reported that home prices have decreased by nearly 3 percent in the Bay Area over the past year. In May, the state’s Department of Finance announced that new housing growth was at its highest level since 2008, countering the tight housing supply that has kept prices up.

Streamlining affordable housing

According to the state’s report, Alameda County had some of the highest housing growth in the state. Alameda County is also home to the majority of the California cities that saw a drop in housing prices this past year.

Smith said he’s optimistic about the next decade in California largely because the state is taking affordable housing more seriously. New state legislation, like the in-progress Senate Bill 423 and Assembly Bill 2011 that went into effect in July, enforce streamlined approval processes for affordable housing projects.

“We need to be trying to build as much housing as we can so the supply increases are ultimately the things that drive down prices.”

Corey Smith, Housing Action Coalition

To Smith, people have seen that a lack of housing means key workers, from the service industry to public safety, can’t afford to live in the Bay Area.

“You’re seeing those staffing numbers go down and it’s not good for the region,” Smith said. “I think just politically people are getting to a place of, ‘Yes, actually, we’re OK with building more housing. We think this is a good thing.’”

Zillow’s “typical home value” is measured using active home listings as well as the value of homes that are not actively on the market, SmartAsset spokesperson Ray Marek said. The value resembles a median price by looking at homes in a given market that fall in the middle tier, or 25th to 65th percentile. The study looked at U.S. cities with populations of at least 65,000 based on the U.S. Census Bureau’s 2021 American Community Survey.

The whole report can be found on the SmartAsset website.

Catherine Allen is a data intern through the Dow Jones News Fund. She is a rising senior at the California Polytechnic State University in San Luis Obispo, with a major in journalism and minor in statistics. Catherine previously served as editor in chief of Mustang News, Cal Poly’s multimedia news organization. She is passionate about public policy’s impact on communities and individuals and often writes about housing and homelessness, public health and politics.