Photo of Mary Pope-Handy, crystal ball, Mary's logo and the words "Mary's Predictions" - Silicon Valley real estate market predictionsSilicon Valley real estate market predictions – it’s time for a mid-December 2023 update. As always, this is a best guess based upon the major influences that we see at play.

My Silicon Valley real estate market predictions in brief:

  • Home prices in Silicon Valley have been rising this year. They hit their trough or low point one year ago.
  • Interest rates are down from their peak. That often happens this time of year since rates are also impacted by supply and demand.
  • Inventory remains painfully and increasingly low as sellers do not want to sell. This is likely to remain the case. 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. That’s what we are seeing now. Many buyers are sitting this market out, but those who are active continue bidding prices up.
  • 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, a big quake, weather and disaster related issues, and more.
  • Home prices are up from a year ago but still down a little from the peak. If the current trends continue, though, we’ll surpass that peak in not too long. And that is precisely my prediction.
  • The low point in pricing is usually in January, but sometimes a month earlier, and the contracts for those sales are ratified 30 days before that (so November or December). If you can find a good home to buy, this will probably be the best possible time to do it. (If interest rates go down more in 2024, it would be wise to refinance.)
  • Mike Simonson of Altos Research says that if interest rates go down, inventory will also decline since people are more likely to hold onto their first home when moving up if they can swing it without having to sell the first place. Check out his YouTube page here.
  • Many buyers are waiting this out. I believe that they risk being priced out of the market if the typical pattern continues and we see large price jumps in the new year. I expect home prices will rise in the first half of 2024, which is often the case.

3 minute video on the current market and future predictions

I just re-watched this video from two months ago. It’s still applicable, with one change: the market has heated up a little and I would no longer call it sluggish.  We are often finding homes getting 10+ offers if they are good.

Supply and Demand + Seasonal Patterns

This odd market with home prices rising despite interest rates rising comes down to highly motivated buyers fighting over a scarcity of homes for sale.  Below is a chart from MLS Listings which displays the inventory of active listings of single family homes (houses and duet homes) from January 2004 to today. Since we are close to the end of September, I am including the month to date.

Take a look:

Inventory SFH pre-pandemic and now

 

From about 2006 – 2012 we had the impact of the financial collapse with many foreclosures and short sales inflating the number of listings. Beginning in 2013, though, the market followed more normal seasonal patterns. Since then, most years the peak of inventory came close to 2000 houses on the market (except in 2017, when prices skyrocketed). From 2020 on, meaning the pandemic years, inventory has not gotten close to those levels.

This lack of inventory is the main issue, and the corresponding result is increasing home prices.

Below is a chart with the average sale price for single family homes in Santa Clara County (when I spot checked the median sale price the result was almost identical). Seasonally, closed home prices tend to be at the lowest of the year in January, or sometimes in December. Back that up 30 days since most escrows are 30 days long here, and we know that the lowest prices are for sales ratified in November or December.

 

Santa Clara County average sale price Jan 2004 to September 2023

If we overlay the county’s inventory with the average sale price, it’s very clear what the dynamic is and where we find ourselves with today’s Silicon Valley real estate market. My main Silicon Valley real estate market predictions involve these two trends continuing: inventory remaining low, prices climbing higher.

 

Santa Clara County inventory of SFH and average sale prices

 

Unless something drastically shakes up our area such that there’s a flood of inventory, I expect the prices to continue rising and the inventory to continue falling.  The Fed’s action in raising rates has had a definite impact on home buyers, but not ALL of them. Few buyers are fighting for fewer properties, so prices continue ascending.

 

Ongoing 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.

  1. To sell and buy another home will mean paying a much higher interest rate for most home owners. The e exception is cash buyers.
  2. 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.
  3. For long term home owners, there may be capital gains tax due. Not fun and de-motivating!
  4. Home owners fear that if they sell their current home they won’t be able to find an acceptable replacement home.
  5. Some home owners are keeping their first house while buying the second. They become “mom and pop landlords”.
  6. Some home owners are selling directly to family members to keep the property in the family and to lend a hand in an otherwise impossible buying climate.

The main challenge to our market right now is rate hikes, which have been a plague for over a year now.

Other factors, also key, in the Silicon Valley real estate market predictions

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.

Today I took a peek at our retirement accounts and wish I hadn’t. The impending government shutdown is probably causing jitters in that market and hurting our holdings – and probably everyone else’s, too. 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.

We are currently in the middle of a new Covid wave (I know lots of people who have the virus right now). Will it stay a small wave? Let’s hope so.

Silicon Valley real estate market predictions summary

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.

Short of that, buyers who are on the fence now may be fully priced out of the market in the new year if the seasonal patterns hold.

Right now is not an easy time to buy, but most buyers are on the sidelines. Right now may be the best opportunity between now and 365 days from now. Look at the data above and see what you think.

 

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)