AI boom brings Silicon Valley back to life
Bidding Wars
Karan Syal had been looking at properties for several months. He and his partner were anxious to secure a property before prices increased. Every time they tried to find something, they were frustrated by the 100 people that were at an open home or by the barrages of offers they would receive.
So they changed the strategy. They made offers immediately after agents teased them about a forthcoming property.
In December, the couple set their sights on a 2,020 square foot house in San Jose’s Cambrian district. However, another early-bird purchaser also made an offer. Rabeet Naor of Intero Real Estate made his final counter-offer and set the deadline to less than 1 hour. The seller took the US$1.725m offer – US$100k above the asking price – and closed with the couple last month.
This is much easier than battling 10 wolves.
It was helpful that his wife’s chipmaker saw its stock soar. He said that this provided comfort to their mortgage lenders and enabled them to sell shares in order to make the 20% deposit.
Syal stated that the US$8,500 monthly mortgage is an overestimate, but it is calculated risk. They can simply refinance their mortgage if the borrowing costs go down.
Silicon Valley in California is seeing a resurgence of the housing industry thanks to the AI boom.
San Jose has the most packed open houses. Homes that are worth more than $1 million often sell for many thousands of dollars over their asking prices.
A recent drop in interest rates is causing buyers to hurry up and take advantage. This comes after the year-long surge in Big Tech shares, fueled by AI’s exuberance. Many people are taking the plunge for the first.
The number of first-time purchasers is high and they feel wealthy.
As the mass exodus from Northern California into cheaper locations across the country begins to wind down, competition for houses is increasing. Return-to -office mandates force workers to live near many headquarters dotted around the suburban landscape. These include Apple and Alphabet as well as AI chipmaker Nvidia whose share price has tripled in a year.
This has helped offset thousands of layoffs which have been roiling tech. In a market where supply is scarce, a slight bump in demand could spark escalating bidding.
Silicon Valley in particular and the San Francisco Bay Area as a whole are closely tied to tech. The spring season is traditionally the busiest selling time for agents, with demand spiking in cities like Boston, Seattle and Denver.
San Jose has the fastest-paced home sales of the 50 largest US cities. Redfin statistics for the four week period up to February 4 show that 61 per cent (or 62 listings) of those new listings sold within less than 14-days. Seattle – the market that is home to Amazon.com & Microsoft – came in second, with 59 percent of listings being sold within 14 days.
Redfin reports that homes in San Jose have sold an average 2 per cent above the list price. This could translate into an important premium when sellers ask a median US$1.3million.
Many software engineers are compensated with company shares, which is why they have such high-priced houses.
You can buy a US$3 Million home in Los Altos if you earn US$200,000 but with your stock assets.”
San Francisco
San Francisco has recovered slower than Silicon Valley partly because it was affected so severely by the pandemic. There is a particular lack of demand for high-priced condos located in the downtown area. Even before they hit the market, well-located properties are attracting a lot of interest.
Alexander Lurie with Compass San Francisco organized a free open house to showcase a US$3.5million, three-bedroom apartment in Marina District. It was held on the weekend of the NFL Conference Championships, when the San Francisco 49ers took part.
In total, 55 people toured the property. It was newly renovated with an open plan and a spacious backyard. The seller raised the asking price to US$4.5M after seeing all this interest.
Pandemic frenzy
Since mortgage rates have risen over the past two years, inventory has been tight both in the US and the local area. This is because many homeowners do not want to sell as it would require them to pay off their low interest loans. Syal is among the move-up customers who have not sold at all. He explained that he planned to rent out his previous home and retain the 2.25 percent loan.
San Jose housing, which is among the most costly in the country, has been on an up and down roller coaster over the past few years. Prices peaked around 2022 when Covid sent buyers into the suburbs. After that, prices began to fall as rates rose last year. The drop in interest rates since the October peak has helped spark this latest frenzy.
The Bay Area has experienced a dramatic drop in home sales as fewer people are moving to Nashville or Austin. Redfin figures show that net migration fell to 26,000 during the fourth quarter. This is a decrease of 13 per cent compared to a year prior and only half of peak levels in September 2020.
Silicon Valley has a steady stream of millionaires who appreciate the value of living close to where they work. Buyer desperation returns, especially in coveted areas like Cupertino or Los Gatos.
She has been trying persuade an husband and wife earning high tech salaries to bid slightly higher. After spending a whole year looking for the right house, they went all out to get it. The asking amount for the 1,600 ft2 property with canyon-views was US$2,35,000,000. Wyss told Wyss by the agent of the seller to stop trying US$2.7m. It was sold.
