Across the Bay Area, home sales were down in September, reflecting a 20% drop from September 2017. For the year, housing sales are trending 4% lower, according to the latest analysis from Pacific Union Chief Economist Selma Hepp.

As sales declined, inventory rose, up 14% year over year in September, which meant about 2,000 more homes sitting on the market. Home values are up 10% for the year, though appreciation has slowed, Hepp said.

"The rebalancing between buyers and sellers is driven by affordability [constraints] and buyer fatigue, with the biggest change seen in relatively affordable and previously fiercely competitive markets," Hepp wrote.

While all Bay Area home sales were down for September, it ranged from a 9% year-over-year drop in San Francisco to a 27% decline in Sonoma County. Three counties in particular had lower sales for the month: Santa Clara, Contra Costa and Alameda.

"While affordability has long been a serious concern in the Bay Area, recent median home price hikes coupled with rising mortgage rates have put a 20% to 25% dent in buyers’ purchasing power," Hepp wrote. "The impact of these forces is causing fewer sales in relatively more affordable parts of the region, such as Sonoma, Contra Costa, and Alameda counties."

The Bay Area's heated housing market has long been seen as a boost for multifamily as residents are driven by the high cost of housing to keep renting.

That remains the case, according to Marcus & Millichap's third-quarter Bay Area Multifamily Market Report. The area has extremely low unemployment, which has led to increased demand for housing. But there is not enough single-family or multifamily housing to meet demand, creating low apartment vacancy ranging from 3% in San Francisco to 3.7% in the East Bay.

As a result, rents continue to increase. San Francisco rents are forecast to rise 3.5% in 2018 compared to last year; San Jose by 5.4%; and East Bay by 2.4%.

As of the first quarter of 2018, 56% of San Francisco and East Bay residents own a home, while 44% rent. In San Jose, it was exactly half.

Hepp said there is a sense that the Bay Area's housing market has reached its peak, which has driven up inventory since more buyers don't want to purchase a home at the top of the market even as more sellers listed their homes.

"To some extent, volatility in financial markets and geopolitical developments may be exaggerating consumer fears," she wrote. "However, the underlying macroeconomic environment and California’s continued growth confirms that housing markets may be returning to a more normal balance between buyers and sellers rather than preparing to topple."