Silicon Valley real estate market predictions – it’s time for a 2023 update. As always, this is a best guess based upon the major influences that we see at play.
My thoughts in brief:
- Home prices in Silicon Valley are generally likely to drop a little as interest rates more gradually rise. For all cash and no loan buyers, it may make sense to wait to buy. For everyone who needs a loan, not so much.
- Inventory is painfully low as sellers do not want to sell. This is likely to remain the case. We’ll go into that more below. The bottom line is supply and demand. If demand remains strong and inventory low, prices will go up and only be tempered by the rate issue.
- Many factors could swing the market one way or the other: Covid (new variant is more immune evasive), layoffs, the stock market, how much rates rise, weather and disaster related issues, and more.
- Home prices are down anywhere from 10-25% from the peak of Spring 2022 depending on the particular property. They may go down another 5% at most in my opinion IF the Fed raises rates until we go into a recession. Most likely it will be less than that, I believe. It really depends on the micro market (condos in one area versus a luxury home in another, areas with shorter or longer commutes, etc.).
Silicon Valley real estate market predictions and these major factors
Nationally, we know that the Federal Reserve will continue to raise rates, though at a calmer pace than we experienced in 2022. There seems to be disagreement about how large these will be. When interest rates go up, home prices normally go down, though it’s not always a perfect correlation. Even so, less dramatic interest rate hikes should track with less dramatic home sale price declines if everything else remains about the same. Check out the Bankrate article on this topic of how much rates will rise.
Inventory issues – most sellers aren’t selling
Generally, only those who have to sell are selling now. It could be a change in their employment (relocating, layoffs), a change in their mortgage rate (if they bought with an adjustable rate but cannot really afford the new payment amount), a change in their life (marriage and combining households, birth, death, divorce, serious illness, moving to care for an elderly relative, etc.).
Here there are many reasons why sellers aren’t selling right now.
- To sell and buy another home will mean paying a much higher interest rate for most home owners. The e xception is cash buyers.
- To sell and buy another home will mean paying much more in property taxes. The exception is for 55 + consumers who can transfer their property tax rate.
- For long term home owners, there may be capital gains tax due. Not fun and de-motivating!
- Home owners fear that if they sell their current home they won’t be able to find an acceptable replacement home.
- Some home owners are keeping their first house while buying the second. They become “mom and pop landlords”.
- Covid is a factor for some, who don’t want to live in the home while it’s on the market but shudder at the cost of storing all of their stuff and staying in a short term rental (and moving twice).
Yesterday I ran the inventory of single family homes (mostly houses but a few duet or attached single family homes – these are not duplexes or townhomes). Here’s a look at the situation in Santa Clara County now with the 11 year average in the far right side.
In 2012 our housing market was starting to recover and by 2013 it was strongly underway (you can see the drop in inventory between the two years). Most of the next few years saw lower and lower inventory and higher and higher realty sale prices. That was especially true in late 2017 and in late 2021 – early 2022. After both of those, the market cooled again, which is normal. It does not just go up, but rolls both up and down – with up being the major trend over time.
Other factors, also key
Employment: as a general rule, if people move to this area from elsewhere it’s for work opportunities, not for leisure or for retirement. Layoffs are happening here and in many parts of the country, especially in the tech sector. Layoffs and the fear of layoffs is dampening some buyer interest, but there are enough folks who are not afraid for their jobs that demand remains strong. If the Fed pushes us into a deep recession, buyer demand will slack, and then prices will fall.
The stock market and employment are closely tied. If companies are doing poorly, they may have layoffs. But also if their stock is low, many Silicon Valley home buyers will lose their buying power. This is perhaps more true here than anywhere else in the country. Having stocks plummet while interest rates shoot up is a double whammy for tech fueled home buyers. A lot of us have seen a 20% drop in our retirement or investment holdings. How much worse will it get?
Also, those who were depending on their 401ks to supplement social security may find themselves working longer than originally planned, or if they retired, trying to re-enter the workforce. If they are home owners, that’s another reason not to sell – they need to be here.
Covid: we wish the coronavirus pandemic were over, but it’s not, and it can still impact the housing market. When we first stepped into this crisis, home sales came to a near full stop, the stay at home orders increased demand for more space and especially more work and outdoor space. This hurt condo sales (where there was no patio or balcony) and caused a spike in single family prices once we were allowed to show and sell again.
The newest strain of Omicron, the XBB.1.5 variant, is fast growing and sure to cause chaos as it is immune evasive and is spreading insanely fast. People don’t seem to be getting sicker, but many more people are getting sick. This may impact supply chains and all of that again, like a bad Deja vu. I would not rule out lockdowns if hospitals again become overwhelmed and pushed to a crisis point. We literally never know what is around the corner with this awful virus. Hopefully that does not become the case.
In short, my Silicon Valley real estate market predictions are for continuing short supply of homes to buy with a fairly strong demand in the foreseeable future. A recession, massive layoffs, a plunging stock market, or a super sized Covid wave could change that picture into something very different. Will the San Jose real estate market crash? I don’t see that happening unless the gruesome possibilities listed above come to fruition.
Related reading to Silicon Valley real estate market predictions:
Santa Clara County real estate market (this site, updated monthly, great info on Silicon Valley real estate trends )
San Jose real estate market analysis (this site for the San Jose real estate market trends)
Housing stats site – popehandy.rereport.com for Santa Clara County, San Mateo County, and Santa Cruz County
Articles on local real estate markets and related info (on this site)
Other reading, not related to Silicon Valley real estate market predictions:
What does work finaled mean? (on this site)
Learn about Los Gatos neighborhoods on our Live in Los Gatos blog
Contingencies (on our popehandy.com site)