Source: Mansion Global

Home prices in the San Francisco Bay Area increased by 14% between the first quarter of 2021 and the first quarter of 2022, rising to a median price of $1.87 million, according to a report released by Compass on Thursday. 

As wealthy buyers continued to see their net worth increase, the luxury market saw even stronger performance in the same time period, according to Compass.

“The luxury market in the Bay Area has been incredibly strong ever since the pandemic hit,” Patrick Carlisle, chief market analyst for Compass in the San Francisco Bay Area and the author of the reports, told Mansion Global. “The affluent had more money than ever from the stock market, and they decided to go out and buy homes, second and third homes, bigger homes. The pace of sales in the higher price ranges outpaced the pace of sales in the general market.”

In the moneyed enclave of Marin County, the average price per square foot jumped from $818 in the first quarter of 2021 to $978 in the first quarter of 2022, and the average number of days on market dipped from 40 to 29 in the same period as cash flush buyers moved quickly to snap up high-end properties.

“Obviously there’s been significant appreciation that has occurred over the last couple of years,” Mr. Carlisle said. “This quarter has been one of the most frenzied markets I’ve ever seen.”

However, activity in the first few months of the year has yet to reflect recent increases in interest rates, which are broadly expected to at least slow down the rapid pace of sales and price growth across U.S. markets. How much interest rate-related changes might affect the Bay Area’s luxury markets remains to be seen.

“The really big jumps in interest rates occurred just over the last three weeks,” Mr. Carlisle said. “We’re now up 50% from where we were three months ago. It’s an enormous change in the cost of housing, and when you add the enormous jump in prices then you have a double whammy as far as housing costs are concerned.”

While luxury buyers tend to be less immediately affected by interest rate hikes, if overall competition in the market slows, or if interest rate increases have knock-on effects in financial markets, the luxury sector could start to see an impact.

“There might be some sort of price adjustment, but at this point I don’t see a crash,” Mr. Carlisle said. “What’s going to be key to the luxury market is: what is the stock market going to do? The affluent are much more tied to the stock market than the general public.”

Mr. Carlisle added, “One of the reasons the stock market has gone so crazy over the past two years is investors reacting to incredibly low interest rates. But so far, they’ve been willing to shrug off the fact that those interest rates are now going up.”