Silicon Valley’s housing market reawakens by AI boom
San Francisco
San Francisco is still recovering more slowly than Silicon Valley. This is partly because the city was hit hard by this pandemic. The demand for expensive condos in downtown San Francisco remains low. While well-located houses attract attention before they are even officially listed, those that are in a good location will be able to sell quickly.
Alexander Lurie from Compass San Francisco held a informal open house at a US$3.5 Million, three-bedroom home in the Marina District. The event took place on the weekend when the San Francisco 49ers won the NFL Conference Championships.
A total of 55 parties visited the property to view its newly refurbished open floor plan, and large backyard. After seeing so much interest, the vendor increased the price of the property to US$4.5million.
Silicon Valley, California’s Silicon Valley is experiencing a housing boom thanks to the AI (artificial Intelligence) boom.
San Jose open houses are packed. Starter homes that cost millions of dollars or more are selling for hundreds and thousands over the asking price.
In the wake of AI-fueled exuberance, buyers are eager to seize this opportunity. Most people buying houses now are first-time buyers.
They are all feeling rich.
The housing market is becoming more competitive as the massive exodus out of Northern California for cheaper areas in other parts of the country comes to an end. The return-to-office directives are driving workers to seek out homes close to many of the headquarters in suburban areas, such as Apple, Alphabet or AI chipmaker Nvidia.
The effect of thousands laid off in the technology industry has been mitigated. In an area where there is a shortage of supply, even the slightest increase in demand will cause bidding to go up.
Silicon Valley is the most closely linked US housing market to the fortunes and success of the technology industry. However, agents in other major hubs like Boston, Seattle or Denver could also see a boost in demand, especially during the spring selling period, which begins after the Super Bowl.
San Jose, the largest US metro area with the highest home-sale pace, is the leader. Redfin data from the four-week period ending on February 4 showed that 61% of new listings had been sold in under 14 days. Seattle, the home of Amazon.com and Microsoft, was ranked second in terms of how quickly listings vanished.
Redfin says that on average, properties in San Jose sold for 2 percent more than the list price. It could be a significant increase in the median price for sellers who asked US$1.3 million.
It is not surprising that company shares are an important part of the compensation package for many software engineers, and other employees in tech. This explains why they can afford these expensive homes.
Stock wealth can be used to buy the US$3 million house in Los Altos that you would not have been able to afford with a US$200,000 wage.
Pandemic frenzy
Inventory in the region – and all across the US- is tight due to the high mortgage rates. Few home owners are willing or able to sell, if that means they will have their cheap loans repaid. Syal is one of the few move-up purchasers who aren’t willing to sell. He said that instead of selling, he will rent his former house to a tenant and hang on to the 2.25-percent mortgage.
San Jose has had a roller-coaster of a housing market in the last few years. It is one the most expensive markets in the entire world. Prices peaked after Covid sent buyers running to the suburbs in 2022. But, with the increase in rates in last year, the market began to cool. The decline in borrowing costs from the peak of October helped to set off this latest buying frenzy.
The Bay Area’s pandemic exodus to cheaper places like Nashville and Austin is slowing down. Fewer homeowners are now leaving the Bay Area. Redfin statistics show that in the 4th quarter, the net outflow was just 26,000, which is down 13 percent from a previous year and less than half of what it was in September of 2021.
Silicon Valley still produces millionaires who are attracted to living near their job. Buyer desperation creeps back, especially when it comes to coveted locations such as Cupertino & Los Gatos.
She is trying her best to convince a couple who are both high-paid tech professionals to bid more. They decided after a year to put in a serious bid for the San Carlos home they had been eyeing. The asking rate for the 1,600-square-foot property with canyon view was US$2.35million. Wyss received US$2.6m and was told not to try US$2.7m by the seller agent. The property sold to another person.
Competitive Bidding
Karan Syal was a tech worker, and his spouse had been searching since months. They wanted to get something before prices rose further. However, 100 people visiting an open-house or a barrage with offers would have forced the couple to bid more than they could afford.
So, they changed their approach and started making offers after agents tease about a property coming soon on the market.
In December they decided to buy a 2,000 sq ft house in San Jose’s coveted Cambrian school districts, only for another early-bird buyer to beat them out. Rabeet, the agent from Intero Real Estate who represented them, submitted a counter-offer which was due to expire after less than an hours. The seller agreed to the US$1.725million bid — US$100,000.00 more than the original asking price.
Even though they got into a minor bidding battle, it is still much easier than fighting ten wolves simultaneously.
It was also helpful that the chipmaker at which his wife works has seen its stock rise. It reassured the mortgage lender. They were then able to sell some of their shares to cover the 20 percent down payment.
Syal says that while the US$8,500 mortgage bill per month is a stretch for most people, it’s a calculated and safe risk. If borrowing rates fall, the couple will refinance at their current rate of 6.375 per cent.
