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How has the pandemic affected home prices and other costs?

The Bay Area is home to the most expensive housing market in the country. The combination of high demand and limited inventory due to one of the lowest per capita housing production rates in the country continues to contribute to the housing affordability crisis in the region. Yet, the latest Cost of Living Index data from the Council for Community and Economic Research showed that the average cost of living increased almost 10% between the first quarter of 2019 and the first quarter of 2022, while San Francisco’s cost of living decreased by 8%. According to the California Association of Realtors, home sales in the Bay Area declined 37% in October 2022 when compared to the same month last year. San Francisco was also the only county in the region to also experience a decrease in home values during this time period, down 2% compared to +10% in Marin or +6% in Santa Clara.

Cities like Miami, Tampa and Atlanta saw more drastic increases in home prices given median household incomes from 2019 to 2021. This means that home costs increased at a faster rate than wages in these places. In the Bay Area, meager increases in this ratio of home price to income speak to a shift in household preferences away from high cost cities and towards lower cost metros or suburbs where families could get a bigger bang for their buck (see section on people). A study by the Federal Reserve Bank of San Francisco found that shift to remote work during the pandemic drove over 60% of house-price surge nationwide. It makes sense, then, that the counties in California that saw the biggest home appreciations during the pandemic were more suburban than urban (Monterey County, Santa Cruz County, Sacramento County).

Still, median home sales prices in the San Francisco and San Jose metro areas are nearly $1 million higher than median prices in hotter up-and-coming markets. In fact, of the top 25 largest metro areas, the four most expensive regions are all in California. These prices created conditions pushed lower income households to locations further from job centers or out of the region or state entirely, which the pandemic exacerbated. Even as permitted units from previous years could still break ground in San Francisco, developers are hesitant, as the cost to build new housing has outpaced revenues that can be generated through rents or sales.

What’s going on in the rental market?

While lack of production affects the rental market as well, the cost of renting a home decreased across various markets during the pandemic, most notably large urban coastal cities. Places where workers were given more flexible work arrangements encouraged many to leave behind big high cost cities — some to lower cost cities like Sacramento or up-and-coming Austin, others to more affordable parts of the region. The vacancies left by this drop in demand drove down rents, and they’ve largely stayed there. San Francisco remains the only large city to boast lower rental prices than before the pandemic. Some new movement back into the region (see section on people) may start increasing demand and bringing rents back up to pre-pandemic levels, but so far growth has been incremental.

Have wages kept up with inflation?

Wages across the country have grown at accelerated rates since 2020 as the economy recovered from the pandemic and labor markets tightened considerably. At the same time, high inflation ate away at much of the spending power gains workers had achieved. While prices were up considerably across the country, metro areas experienced different levels of inflation over the last three years. A major factor in this variation is housing—both homeownership and rental costs—which accounts for approximately one-third of the costs in the consumer price index.

In tracking real wage gains in each metro area, a clearer picture of inflation and its impacts can be achieved. The San Francisco metro area tops the list of metro areas in terms of real wage growth from 2019 to 2022. Slower inflation in San Francisco was the major contributor, as rents continue to be below pre-pandemic levels. The San Francisco metro area has become relatively more affordable over the last three years when compared to peers, but not because the region produced out-sized gains in wages.


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