Better market balance points to more hopeful environment for first-time buyers in 2026 By Devin Davis February 9, 2026 1:25 pm
After a year marked by greater housing choice and shifting market dynamics, a new generation of homebuyers may be poised to emerge in the Bay Area.
Devin Davis, public affairs specialist for Bay East Association of Realtors. (Photo courtesy Bay East) Recent East Bay housing trends suggest that conditions are becoming more favorable for buyers, and particularly younger adults who may have been waiting for the right moment to explore homeownership.
According to East Bay market data from 2025, buyers had significantly more options throughout the year, approaching pre-pandemic norms with more than 2,300 homes listed for sale on average each month.
“The market we’re looking at now is the kind of environment that can be important for younger buyers who are navigating homeownership for the first time,” said Bill Espinola, 2026 president of the Bay East Association of Realtors. “More time on the market means a little more breathing room.”
While affordability remains a consideration across the Bay Area, local real estate professionals report that more time, more inventory, and steadier pricing have encouraged younger buyers to move from observation to participation.
“Affordability is still a challenge, but it’s not entirely the barrier a lot of people believe it to be,” Espinola added. “With more choices and less urgency, buyers can really find opportunities that simply weren’t available a few years ago.”
Local Realtors note that there are successful buyers who are first-time homeowners and longtime renters who once assumed ownership was unattainable.
“I often see buyers who are genuinely surprised by what’s possible,” said Adrian Yip, 2025 chair of the Bay East Young Professionals Network. “Younger generations often underestimate their buying power during our initial conversations – and as seasoned professionals, we have the expertise to maximize a client’s budget and provide resources for first-time homebuyers.”
As national generational trends continue to show gradual gains and local conditions support a more balanced buying environment, Realtors say the outlook for aspiring homeowners, including younger buyers, is increasingly hopeful.
“If I could share one message of encouragement, it’s to not be afraid to ask,” Yip said. “Realtors have access to much more information and resources than anything available online. Just having a conversation allows us to help you map out a strategy, whether it’s a one-year or a five-year plan.”
Proposition 19 replaced previous Propositions 60 and 90 on April 1, 2021, allowing eligible homeowners to transfer the taxable value of their existing primary residence to a replacement primary residence. The new law gives homeowners more options for moving to a different home for their retirement years. If you are 55 years old or older and meet the requirements of the law, you can apply your existing tax bill to a replacement home.
Conditions One owner of the original property must be 55 or over. The transfer of taxable value can be filed up to three times by a property owner over their lifetime. The transfer may be within two years of sale of original primary residence. The sale price of this house becomes the full cash value* of the original primary residence. The replacement residence can be of any value, and anywhere within the state. If the replacement residence is of equal or lesser value than the original primary residence, the factored base year value** of the original primary residence may be transferred to the replacement residence. If the replacement residence is of greater value than the original primary residence, partial relief is available. The new base year value of the replacement residence is the sum of the factored base year value** of the original primary residence plus the difference between the full cash values* of the original primary residence and the replacement residence.
To qualify for this exclusion, the owner is required to live in the replacement property and must have a Homeowners’ Exemption filed within one year of the transfer.
*Full Cash Value The full cash value of the original primary residence has a different meaning depending on the purchase date of the replacement primary residence:
100% of the amount of the full cash value of the original primary residence if the replacement primary residence is purchased or newly constructed before the sale date of the original primary residence.
105% of the amount of the full cash value of the original primary residence if the replacement primary residence is purchased or newly constructed within the first year following the sale date of the original primary residence.
110% of the amount of the full cash value of the original primary residence if the replacement primary residence is purchased or newly constructed within the second year following the sale date of the original primary residence.
**Factored Base Year Value The factored base year value is the market value as of 1975 or as established when the property last changed ownership or was modified due to construction. This amount is then increased by no more than 2% each year.
Examples These examples show the savings in property taxes if the price of your replacement home is higher than the value of your original home.
Original house sold for $1M. Replacement house purchased for $1M Difference: 0 Factored base year value of original house: $325,000 New base year value of replacement house: $325,000 Annual property tax on $1M at 1.25% = $12,500 (without Prop. 19) Annual property tax on $325,000 at 1.25% = $4,063 (with Prop. 19) Savings: $8,438 per year
Original house sold for $1M. Replacement house purchased for $1.2M Difference: $200,000 Factored base year value of original house: $325,000 New base year value of replacement house: $325,000 + $200,000 = $525,000 Annual property tax on $1.2M at 1.25% = $15,000 (without Prop. 19) Annual property tax on $525,000 at 1.25% = $6,563 (with Prop. 19) Savings: $15,000 – $6,563 = $8,437 per year
Original house sold for $1M. Replacement house purchased for $1.5M Difference: $500,000 Factored base year value of original house: $325,000 New base year value of replacement house: $325,000 + $500,000 = $825,000 Annual property tax on $1,500,000 at 1.25% = $18,750 (without Prop. 19) Annual property tax on $825,000 at 1.25% = $10,313 (with Prop. 19) Savings: $18,750- $10,313 = $8,437 per year
You can see that the property tax in these examples increases from $4,063 to $10,313 per year as the cost of a replacement house exceeds the value of an original house. However, Prop. 19 still provides a saving ($8,437 per year in this example) for a more expensive house.
*Kind of long read by internet standards, but it’s important informtion…
A landlord may recover possession of a rental unit for the occupancy of the owner or a relative of the owner for use as their principal residence for a period of at least 36 continuous months. A relative move-in eviction is only permitted for certain close relatives of the owner, including a child, parent, grandparent, grandchild, sibling or the owner’s spouse or spouses of such relations. The term “spouse” includes domestic partners. However, owners who evict for these relatives to move in must already live in the building or be moving into the building at the same time as the relative.
The owner or relative should move into the unit within three months and intend to occupy the unit as that person’s principal residence for at least 36 continuous months. If a comparable unit owned in the same building is vacant or becomes vacant during the period of the notice terminating tenancy, then the notice must be rescinded. A vacant, non-comparable unit owned in San Francisco must be offered to the tenant being evicted.
An owner who wishes to evict a tenant for owner or relative occupancy must have at least a 25% interest in the property, if the ownership interest was recorded after February 21, 1991. If ownership was recorded on or before February 21, 1991, then the owner is only required to have a 10% minimum interest. Domestic partners can combine their interests to achieve the required 10% or 25% interest in order to occupy a unit.
The Ordinance generally permits the eviction of tenants from only one unit per building for the owner’s use and occupancy. Where a tenant is evicted for owner occupancy after December 18, 1998, that unit is designated as the owner’s unit for purposes of subsequent owner-occupancy evictions, unless the owner’s disability or other similar hardship prevents occupancy of that unit.
Tenants who are at least 60 years old or who meet the disability guidelines for federal Supplemental Security Income and who have lived in the unit at least 10 years, or tenants who are catastrophically ill and who have lived in the unit for at least 5 years, have a protected status and cannot be evicted for either the owner or the owner’s relative to move into a building which has 2 units or more. However, tenants who would otherwise have protected status may be evicted if the unit is the only rental unit owned by the landlord in the building, or if the landlord’s qualified relative who will move in is 60 years of age or older and each rental unit owned by the landlord in the same building (except the unit occupied by the landlord) is occupied by a tenant with protected status. It is a misdemeanor to refuse to rent to a senior because that person would acquire rights under the Rent Ordinance.
In addition, any tenant who has resided in a unit for 12 months or more may not be evicted for an owner or relative to move in during the school year for the San Francisco Unified School District, if a child under 18 or a person who works at a school in San Francisco resides in the rental unit, is a tenant in the unit or has a custodial or family relationship with a tenant in the unit.
Any tenant who claims to have protected status must notify the owner of the tenant’s protected status within 30 days of receiving either a notice to vacate or a written request from the owner to declare the tenant’s protected status. The tenant must also include evidence supporting the claim of protected status. The tenant’s failure to submit a statement within the 30-day period shall be deemed an admission that the tenant does not have protected status. Owners who want to recover possession of the rental unit for owner or relative occupancy may contest a tenant’s claim of protected status either by filing a petition with the Rent Board or through eviction proceedings in court.
Where an owner or relative move-in eviction notice was served before January 1, 2018 and the rental unit is offered for rent during the three-year period following service of the notice to vacate, the landlord must first offer the unit to the displaced tenant.
Where an owner or relative move-in eviction notice was served on or after January 1, 2018 and the rental unit is offered for rent during the five-year period following service of the notice to vacate, the landlord must first offer the unit to the displaced tenant and the landlord must file a copy of the re-rental offer with the Rent Board within 15 days of the offer. The tenant has 30 days from receipt of the offer to notify the landlord of acceptance or rejection of the offer and, if accepted, shall reoccupy the unit within 45 days of receipt of the offer.
Where an owner or relative move-in eviction notice was served prior to November 9, 2015 and the landlord re-rents the unit to the displaced tenant or to a new tenant within three years after service of the notice, the initial rent is limited to no more than that which the displaced tenant would have paid had the displaced tenant remained in occupancy, plus any allowable increases.
Where an owner or relative move-in eviction notice was served on or after November 9, 2015 and the landlord re-rents the unit to the displaced tenant or to a new tenant within five years after service of the notice, the initial rent is limited to no more than that which the displaced tenant would have paid had the displaced tenant remained in occupancy, plus any allowable increases.
For owner or relative move-in eviction notices served on or after January 1, 2018, there are new reporting requirements regarding the use of a rental unit following such an eviction notice. Landlords will be required to file with the Rent Board a Statement of Occupancy with at least 2 forms of supporting documentation for the five-year period following recovery of possession of the unit, unless the Statement of Occupancy discloses that the landlord is no longer endeavoring to recover possession of the unit and the Rent Board has granted the landlord’s written request for rescission of the notice to vacate, in which case no further Statement of Occupancy need be filed. Administrative penalties for failure to file the required Statement of Occupancy and/or supporting documentation are mandatory in the amount of $250 for the first violation, $500 for the second violation, and $1,000 for every subsequent violation.
The Rent Board will send a copy of each Statement of Occupancy to the displaced tenant at the address on file with the Rent Board, or a notice that the landlord did not file the required Statement of Occupancy. The Rent Board will also send an annual notice to the unit from which the tenant was displaced stating the maximum rent for the unit.
An owner who seeks to recover possession of a unit for an owner or relative to move in, must do so in good faith, without ulterior motive and with honest intent.
Evidence that the landlord has not acted in good faith in an owner or relative move-in eviction may include, but is not limited to, any of the following:
The landlord times the service of the notice, or the filing of an action to recover possession, so as to avoid moving into a comparable unit, or to avoid offering a tenant a replacement unit;
The landlord has failed to file the notice to vacate with the Rent Board;
The landlord or relative for whom the tenant was evicted did not move into the unit within three months after the landlord recovered possession of the unit and then occupy the unit as that person’s principal residence for a minimum of 36 consecutive months;
The landlord or relative for whom the tenant was evicted lacks a legitimate, bona fide reason for not moving into the unit within three months and/or occupying the unit as that person’s principal place of residence for at least 36 consecutive months;
The landlord did not file a required Statement of Occupancy with the Rent Board;
The landlord rented the unit to a new tenant at a higher rent than the displaced tenant would have paid had s/he remained in continuous occupancy;
The landlord served a separate owner move-in eviction notice for a different unit and has not sought rescission or withdrawal of that notice;
The landlord evicted tenants from multiple rental units in the same building within 180 days of the service of the owner move-in eviction notice; and
The landlord completed buyout negotiations pursuant to Section 37.9E(c) with any other tenants in the same building where possession is sought.
Each month the Rent Board will select a random sample of 10% of all Statements of Occupancy filed with the Rent Board, and compile a list of all units for which the required Statement of Occupancy was not filed and transmit them to the District Attorney for investigation. Any landlord who charges an excessive rent for a unit within five years after service of a notice to vacate for owner or relative move-in is guilty of a misdemeanor and shall be punished by a mandatory fine of $1,000 for each month or portion thereof that the landlord charges an excessive rent. Apart from the mandatory fine, the landlord may also be punished by imprisonment in the County Jail for a period of not more than six months.
In addition to criminal penalties, in cases where a landlord has re-rented a unit within five years after service of an owner or relative move-in eviction notice and charges a new tenant an excessive rent, the tenant may sue the landlord for injunctive relief and/or money damages of not less than three times the amount of excess rent collected. Non-profit San Francisco tenant rights organizations also have standing in some circumstances to bring a civil action for injunctive relief and/or damages against a landlord who collected excess rent from a new tenant following an owner or relative move-in eviction.
Landlords are required to pay relocation expenses to tenants who are being evicted for owner or relative move-in. Each authorized occupant, regardless of age, who has resided in the unit for at least one year, is entitled to a relocation payment of $4,500.00, with a maximum payment of $13,500.00 per unit. In addition, each elderly tenant who is 60 years or older, and each disabled tenant, and each household with one or more minor children, is entitled to an additional payment of $3,000.00. Each year commencing March 1, 2007, the amount of these relocation payments, including the maximum relocation expenses per unit, is adjusted for inflation. Information regarding current relocation payment amounts can be found in our Forms Center. A list of relocation payment amounts is also available at the Rent Board’s office.
The landlord is required to give all occupants of the unit written notice of relocation rights on or before the date of service of the eviction notice and shall also provide a copy of Ordinance Section 37.9C. Such notification shall include a statement describing the additional relocation expenses available for eligible tenants who are senior or disabled and for households with children. The landlord must file a copy of this notification with the Rent Board within 10 days after service of the notice, together with a copy of the eviction notice and proof of service upon the tenant. Within 30 days of receiving a tenant’s claim for the additional payment because of age, disability, or having children in the household, the landlord must inform the Rent Board in writing of the tenant’s claim and whether or not the landlord disputes the claim. However, the Rent Board does not have authority to accept or decide petitions regarding a tenant’s claim for additional relocation expenses based on age, disability or having children in the household. Such disputes must be resolved in another forum.
When was the last time your “full service realtor” crawled under a house for you? I trust my inspectors but sometimes they don’t have the answers your clients are looking for. Thank goodness it’s dry under this home. Let me know if you can see the mummified rat!
As short-term rental supply continues to increase, occupancy has fallen, getting closer and closer to 2019 levels. By Lindsay Frankel
It’s a story that’s echoed across social media platforms from rental property owners across the nation: Vacation rentals are no longer generating the steady revenue investors grew to expect during the pandemic. The era of #Airbnbust has taken hold.
Real estate investor Sabrina Must, who once rented her 2-bedroom condo in Encinitas, California, for $1,000 per night on a holiday weekend, has dropped her rates to $275 per night due to waning demand, The Wall Street Journal reports. Another couple who got into real estate investing during the pandemic saw strong bookings in the beginning, followed by low occupancy rates this past summer.
It’s a problem for many everyday people who decided to try a hand at real estate investing during a period of booming demand, sometimes without a backup plan or the skills to remain competitive during a downturn. As the situation evolves, the short-term rental strategy is losing its appeal, especially as an entry point for beginners.
Why the Short-Term Rental Strategy is Losing Steam Oversupply limits cash flow potential Airbnb occupancy rates have exhibited year-over-year declines for eight months straight, according to data from vacation rental research company AirDNA. It’s not because inflation has curbed the demand for short-term rentals. In fact, nights stayed are up 21.3% as of October when compared to last year. But the supply of Airbnb listings has surged 23.3% year-over-year. 66,000 new rental properties were listed this October, an increase that overshadowed the growth seen the October prior.
What created the oversupply? During the pandemic, demand for second homes nearly doubled as low interest rates collided with remote work opportunities and the desire for more space. The skyrocketing demand for vacation rentals and record revenue data in 2021 also encouraged a new group of real estate investors to buy homes exclusively as rentals. And now, Zillow predicts the number of first-time landlords will grow significantly as second-home owners attempt to earn money from their properties while inflation persists and stock market expectations are bearish. Furthermore, homeowners who have locked in low interest rates may be tempted to rent their homes rather than sell when it comes time to move.
Notably, occupancy rates are still up 12.8% compared to October 2019. AirDNA forecasts that supply will increase another 9% in 2023, despite high mortgage rates causing affordability pressure for would-be second-home buyers—but expects occupancy rates to stay elevated above pre-pandemic levels. However, if rising unemployment cuts into the demand for short-term rentals or if more homeowners decide to become hosts in an effort to boost their incomes, there’s reason to believe occupancy rates could dip even further.
Growth in average daily rates and bookings slows When compared to 2019, demand for short-term rentals has remained stable or increased all over the world. But Airbnb’s revenue growth slowed from 58% in the second quarter to 29% in the third quarter, and Airbnb predicts that holiday revenue won’t live up to market expectations.
AirDNA also reports slowing growth in average daily rates. The 5.6% growth in average daily rates (ADRs) expected for 2022 actually represents a real loss due to inflation. And ADR growth is expected to slow to 1.7% in 2023, while inflation is predicted to remain elevated. The revenue per available room is also expected to decline because the slightly higher rates won’t offset the decrease in occupancy rates.
Local governments are cracking down Short-term rentals were relatively unregulated in the beginning days of Airbnb, and there are still plenty of cities that only require hosts to apply for a short-term rental license. But increasingly, local governments are tightening short-term rental rules due to criticism that an overabundance of vacation rentals limits the availability of affordable rental housing in a community.
In New York City, short-term rentals of less than 30 days are prohibited unless the host is present and the guests are given unobstructed access to the entire unit. In San Francisco, short-term rentals must be primary residences where the owner lives for at least 275 days out of the year. Similarly, Denver only allows homeowners to apply for a short-term rental license for their primary residence. These are examples of a growing number of cities cracking down on short-term rentals. It’s evident that investors entering the short-term rental market now will need a backup plan because if large cities that depend on revenue from tourism are passing strict requirements for rental property owners, it can happen anywhere.
How Investor Struggles Could Impact the Housing Market New investors who snatched up rental properties during the pandemic based on forecasted ADRs at the time may not be able to cover their mortgage payments. As occupancy rates continue to drop, many may be forced to sell their properties. Widespread selling of properties intended for short-term rentals would increase the supply of homes, contributing to a downturn in home prices. Low supply is one factor currently preventing home prices from dropping too rapidly, even as prospective homebuyers pull back due to high mortgage rates.
A more serious problem may occur if prices fall and new investors are left with underwater mortgages. Over the last year, debt service coverage ratio (DSCR) loans have become increasingly common, Bloomberg reports, allowing investors to qualify for larger amounts based on future income projections rather than a large down payment or personal salary. Some of these loans (it’s unclear how many) were packaged and sold to investors as mortgage-backed securities by Wall Street firms. Several lenders in the space have said they expect to issue hundreds of millions in rental-based loans this year, and a significant portion of borrowers will qualify based on projected Airbnb income.
While most experts contend there won’t be a housing crash because lending standards are stricter now than they were before the 2008 financial crisis, these rental-based loans are another story. Without a full account of how many of these loans are out there, it’s impossible to say whether potential defaults could cause enough foreclosures to impact the economy. But certainly, the Airbnb slowdown could contribute to a larger supply of homes on the market.
How to Stay in the Airbnb Game The extensive supply of short-term rental properties means that investors in the space need to stand out as stellar hosts if they hope to maintain high revenues. Brian Egan, CEO, and co-founder of vacation rental management company, Evolve, tells The Wall Street Journal that the most successful hosts provide an outstanding experience by raising the bar for hospitality and ensuring the property meets or exceeds guests’ expectations after viewing the listing.
Hosts should also research the algorithms each listing platform uses to try to expand their reach and enhance their listings to improve conversions. Prioritizing professional photos and offering competitive pricing and policies can increase the likelihood that guests will book your rental, and quick response times are also important.
Ultimately, a backup plan is essential. You may not be able to achieve the revenue you’re hoping for if there’s an oversupply of properties in your market. A deep recession could curb demand for vacation rentals in general. Or local regulations could prevent you from listing your property as a short-term rental altogether. You may need to shift to a medium-term or long-term rental strategy, which you should ensure is possible in the area where you buy. You should also have enough cash reserves to cover your mortgage payments and maintenance if fair market rent won’t provide positive cash flow.
The Airbnb boom may be coming to an end, but there’s still an opportunity to earn money from short-term rentals, especially for experienced and strategic investors. Even as occupancy rates have dropped from their peak, hosts are earning more money now than they were before the pandemic. But property prices and mortgage rates have skyrocketed since then, so new investors must proceed cautiously. Don’t expect any property you buy to be an automatic success. Understand the risks, make research-backed purchasing decisions, and be prepared to pivot in the changing economy.
The Bay Area leads the nation in home sales priced at $1 million or more as a percentage of the market, with San Jose topping the list, according to a recent study.
In greater San Jose, 61 percent of homes sold for $1 million or more in 2020, according to the Inspection Support Network. The metro area made up of San Francisco, Oakland and Berkeley had the nation’s second-highest percentage of deals at or above $1 million, at 49 percent.
Low housing supply and high demand have made $1 million home listings common in a region unlikely to see declining home prices, even amid climbing mortgage interest rates.
In other California Metro areas:
Metro Los Angeles came in third and
San Diego placed fourth
Sacramento had 4 percent of homes in the metropolitan area sold at or above $1 million, placing it at No. 11.
Eight of the nation’s 10 metro areas with the overall highest percentages of $1 million home sales are in California, according to the report. All of the metro areas, which include Santa Cruz (37 percent), Los Angeles (28 percent) and San Diego (19 percent), are either in the Bay Area or along the state’s coast.
In Napa, the 25 percent of homes that sold above $1 million also had the highest median property value of the state’s top 10 areas — $1,545,000, in 2020.
The median property value in Greater San Jose was $1,455,000, in San Francisco-Oakland-Berkeley $1,425,000, and in Greater Los Angeles, $1,405,000.
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