While most of the country’s housing markets remained constrained by increased borrowing costs and economic uncertainty, parts of the Bay Area in California seemed to be following a different pattern.
San Francisco and San Jose recorded some of the strongest home sales gains in the U.S. in May, according to a recent analysis by Redfin.
The surge in demand for homes in these markets was attributed to the region’s booming artificial intelligence (AI) industry.
The Bay Area’s hot housing market fueled the nation’s increase in sales, the study revealed.
San Jose posted the highest YOY increase in closed home sales among all major U.S. metropolitan cities, with sales soaring 25.7% YOY in May.
San Francisco followed closely behind, recording a 19.3% jump in closed sales from the previous year. The city also saw pending home sales, or homes that went under contract during the month, climb 21.4%, one of the biggest increases in the U.S.
Employees of big AI companies in the Bay Area are fueling the fierce demand for homes in the region, driven by their lucrative salaries and bonuses, according to the study.
In addition to homebuyers, the Bay Area has also been attracting keen interest from renters this year despite affordability concerns, with several cities in the region attracting high renter interest.
Opposing Trends in California Housing Markets
While housing markets in the Bay Area remained competitive, other markets in California experienced subdued growth.
Home sales in Los Angeles increased by 10.9% YOY, while median sale prices rose by 0.8%, according to Redfin.
In San Diego, home sales climbed 7.2%, while prices increased by 0.4%.
Home sales in Riverside posted a modest 2.1% jump, while median sale prices increased by 0.3%.
Price trends also saw a sharp difference in Northern California markets.
While San Francisco saw the nation’s highest annual jump in median sale prices, surging 10.9% to $1.77 million, on the other hand, San Jose’s median sale price declined 5.6% YOY to $1.61 million, despite an uptick in transactions.
The sharply contrasting figures indicate that California’s housing market is becoming fragmented, with local economic forces defining outcomes from one region to the other.
The latest analysis builds on an earlier study by Zillow that found that Northern California’s housing markets were showing earlier signs of recovery than Southern California, with Bay Area cities posting stronger gains in home values.
Broader National Home Sales
The Bay Area’s strength comes as the broader national housing market saw mixed results, according to the analysis.
Existing home sales surged by 2.8% in May 2026 from April 2026, reaching their highest level since October 2022, according to the report.
Overall home sales, including both existing and newly built homes, also surged to their highest level since October 2022, rising 3.8% from April 2026.
However, pending home sales, a more recent indicator of buyer activity, remained flat, increasing just 0.1% from April 2026.
Most of the deals that closed in May stemmed from contracts signed in the previous month, when mortgage rates temporarily slipped into the 6.3% range, according to Redfin. By May, mortgage rates had touched an 11-month peak, making prospective home buyers hesitant.
Economic and global uncertainty also served as deterrents, with the ongoing Iran war and resulting closure of the Strait of Hormuz, AI-driven inflation, and the potential hike in interest rates clouding the financial outlook for prospective buyers.
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