Investment, Residential

The Silicon Valley Effect on Real Estate

In 2018, Silicon Valley real estate became the least affordable in the nation due to the high salaries and the numerous millionaire millennial neighbors.

Living Among Giants

Millennials have set up shop in Silicon Valley with their new, hopeful start-ups, or by nailing a high paying job at one of the many tech companies that have changed the world over the past few decades—like Apple, Google, Facebook, YouTube—to name a few.

The average, modest home in Silicon Valley within a twenty-minute commute to these major tech companies costs around 1.1 million dollars. A house that was partially burned down recently went on the market in the county for eight hundred thousand dollars—and sold. And even sacrificing the close commute to work doesn’t save much more money. Bay Area real estate, in general, has become shockingly expensive and reserved for the millionaire class.

2026 Biarritz Pl <a href=
San Jose, CA 95138" width="550" height="413" /> 2026 Biarritz Pl, San Jose, CA 95138 selling for 4.5 million

The state of California represents one of the biggest economies in the world. In addition, the Bay Area alone boasts nearly $800 billion in GDP on an annual basis. This is more than the entire economies of Sweden, Saudi Arabia, and the Netherlands. There is clearly money to be made in tech still, whether it’s working for one of the many aforementioned mainstay companies or starting the next big thing. But the price one must pay to take that shot is only getting higher and higher. And a number of reactions in the region are happening as a result.

The Hottest Market

The most immediate effect of Silicon Valley is that neighboring communities like San Jose, Oakland, and San Francisco have seen their real estate inventory plummet and their average home prices jump. According to Zillow, San Jose is the hottest housing market in the country by far. Inventory fell by 28 percent in 2017. Nearly seventy percent of all homes that hit the market went for over asking price and closed in an average of 42 days. Home values were also estimated at 1.2 million dollars on average. This is more than the average home sale in Silicon Valley itself. Buyers seem to prefer more access to things outside of work in a city like San Jose. They prefer this more than an outlying community in the heart of Silicon Valley. And at this point, home values are also skyrocketing, with a near 23 percent rise per year.

320 Sea Cliff Ave, San Francisco, CA 94121 selling for 13 million
320 Sea Cliff Ave, San Francisco, CA 94121 selling for 13 million

While San Francisco has never been a stranger to high priced real estate, it landed fifth on Zillow’s ten hottest housing markets in the country in 2018. Its average home value is $923,700, well below San Jose’s, but still the second highest in the nation. This sudden rise is due almost entirely to the lack of inventory in Silicon Valley. The engineers at these tech companies who can’t afford a modest two and two that’s over a million dollars—assuming they can actually get their offer accepted—opt to live in the big city instead and commute. Rising prices in other Bay Area communities on the Eastern side south of Oakland reflect a similar trend.

New Booming Communities

The long-term reactions, however, have larger ramifications. One of them is that talented engineers or start-ups who don’t want to spend so much money on housing and cost of living in the Bay Area will simply set up shop somewhere else. There are many other booming communities around the country that are great new tech hubs (Los Angeles, Austin, Seattle, for example) that will welcome these start-ups with open arms, hoping they will be the next big thing in tech, headquartered in their city. If this starts happening on a regular basis, the housing boom in Silicon Valley and the surrounding areas will slowly but surely silence.

And another possibility for growth could arise in the Northern California coastal real estate market. It would change the dynamic a little quicker. Keep in mind, many of people buying homes in the area that are from Silicon Valley companies have stock options. This money gives them the ability to buy these homes. This is especially when one considers the NASDAQ composite is higher than it’s ever been in history. But if the NASDAQ takes a dive, a lot less home buying will occur. This may create real opportunity for a savvy real estate investor who waits until exactly the right time.

 

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Nicola Ianeselli is the Chief Technology Office for InternationalRealEstate.News and specializes in the future application of Blockchain, Artificial Intelligence, Machine Learning and Drone Mapping for Real Estate. An MBA, civil engineer and architect by training, Nicola also actively promotes international integration in his community.

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