Last year I made some Silicon Valley real estate market predictions. My 2020 predictions had been correct despite the pandemic surprise. My 2021 were mostly on track, too, but appreciation was significantly steeper than I had expected. I’d thought that values would rise 5 – 10%, but it was more like 20% in 2021.
We wondered if there’d be a large influx of seniors selling after April 1st. when it was easier to move the property tax basis in California. If there was an uptick, it was dwarfed by the large scale inventory shortage and was nothing more than a drop in the bucket.
Quick 2022 prediction points (these look a lot like 2021, generally):
- Inventory remains excessively low, demand high, prices will continue rising in 2022
- many real estate economists are predicting a lower rate of appreciation for this year, but Silicon Valley often outpaces everywhere else
- The situation is fueled by COVID, working from home, and low interest rates
- Inflation is now playing a part, and interest rates are expected to rise a little in 2022
- unless interest rates rise more than a percent, prices are likely to continue climbing as there is a ton of pent up demand still
- Part of the challenge is that buyers who are moving up or downsizing are keeping their prior home as a rental (not selling it)
- If the pandemic eases, will buyers be less driven? That’s a question. Some who are working remotely may eventually be called back to the office, but right now that seems unlikely. I believe we will have several years before the population is comfortable being in big crowds at work again. If and when that happens, there will be more demand for local housing, and it could spur prices to rise again.
We can never see all that far into the future, but as we begin 2022, I can tell you that I’ve never seen inventory this low. Today I checked and there are only 299 houses for sale in all of Santa Clara County. A year ago it was about twice that many.
Real estate corrections (10% or less) and crashes do happen periodically. Often it’s about every 10 years that we get a 10% price rollback or so. We have had 10 years of solid appreciation and are due for a correction. I don’t see it coming in the next 6 months, but any number of unforeseen things could trigger it.
Some buyers may ponder waiting. I’m not encouraging that because I don’t have any idea how much prices will rise before they roll back. Further, I don’t know what interest rates will be like whenever that does happen.
Last year: Mary Pope-Handy’s Silicon Valley real estate market predictions for 2021:
Here’s what I had for 2021. Not too far off the mark, but the pandemic didn’t ease much and senior sellers did not sell much.
- With ongoing crucially low inventory, there’s a good chance that prices will rise another 5-10% for single family homes in 2021. This will be even more likely if interest rates remain low and the stock market overly exuberant. A lot of wealth here in the Bay Area is tied to stock holdings.
- Condos and townhomes may be less desirable now and during the worst of COVID (and have lost some value in the last year), and may lose value in the short haul, but as prices for houses move out of reach, the condominium and townhouse market will likely become the next hot spot of the market. For the first half of the year, the majority of condos are likely to lose value, possibly making it a good time to buy a condo, but rise after the Spring market (when single family homes move further out of reach). That has often been the pattern.
- Early 2021: buyers aren’t going to wait for the Spring market, but will jump on inventory as soon as it becomes available. I was showing property on January 2nd.
- Multiple offers will remain common, particularly in areas with good commutes, good schools, or some feature with enduring value, such as architectural charm.
- Overbids and non-contingent offers may be the norm for much of the market. Non contingent may become more typical even without multiple offers.
- The second half of 2021 should bring relief from the Coronavirus, but also a loosening of tax regulations for senior home sellers with Proposition 19 going into effect as of April1st. It may be that some seniors will then be willing to sell and relocate to other parts of California. If there’s a significant increase in listings, we may see more balance come to the market. It would need to be a large influx of listings to change the present dynamics, but any increase in the number of homes to buy will help.
- Once this pandemic is in the rear view mirror, having a larger home, or being further from commute locations may not be as much of a driver as it is now. Will tech workers be able to continue living in resort areas while working for companies in Silicon Valley? We don’t know. The resort markets have been white-hot, too – but if 2 years from now people cannot actually live in Tahoe and work in Mountain View, there could be a trend reversal.
The driver of this white hot market is inventory. For those interested in more than just my predictions, please keep reading – here’s some more info on the housing inventory in Silicon Valley and its history.
Low inventory continues to be the # 1 story behind the real estate market in Silicon Valley and across the country. Our pandemic driven sellers’ market remains in full effect.