AI boom reawakens Silicon Valley’s housing market

RICHES from the artificial intelligence (AI) boom are reigniting the housing market in California’s Silicon Valley.

Open houses in the San Jose area are packed, million-dollar-plus starter homes often sell for hundreds of thousands over asking, and listings are flying off the market at the fastest rate in the US.

Buyers are rushing to take advantage of a recent dip in mortgage rates, and they’re flush from a yearlong rally in Big Tech stocks fueled by AI exuberance. Many people taking the plunge now have never purchased a house before.

“We have so many first-time buyers,” said Julie Wyss, a Los Gatos-based agent with Keller Williams. “They’re feeling very wealthy.”

Competition for homes is intensifying as the pandemic exodus from Northern California to cheaper locations around the country winds down. Return-to-office mandates are pressuring workers to find places close to the many headquarters that dot the suburban landscape, from Apple, Inc. and Alphabet, Inc. to AI chipmaker Nvidia Corp., with a share price that’s tripled in the past year.

That’s helped offset the effect of thousands of layoffs roiling the tech industry. In an area known for scarce supply, even a small bump in demand can set off bidding wars.

No US housing market is as tied to the tech industry’s fortunes as Silicon Valley and the broader San Francisco Bay Area. But agents in other hubs, from Boston and Seattle to Denver, may also see a bounce in demand during the key spring selling season, traditionally kicking off right after the Super Bowl this weekend.

Among the 50 biggest US metro areas, San Jose is in the lead with the fastest home-sales pace. There, 61% of new listings went under contract in less than 14 days, according to Redfin Corp. data measuring the four weeks through Feb. 4. In second place was the Seattle market — home to Amazon.com, Inc. and Microsoft Corp. — where 59% of listings disappeared that quickly.

Properties in the San Jose area sold at an average of 2% over the list price, Redfin said. That could translate to a significant premium in a place where sellers asked a median of $1.3 million.

Company stocks often make up a big chunk of compensation for software engineers and other tech employees, which explains how they can afford such pricey houses.

“You don’t buy a $3-million home in Los Altos on a $200,000 salary,” said Michael Simonsen, founder of San Francisco-based housing data firm Altos Research. “But you can buy it with your stock wealth.”

Tech workers Karan Syal and his wife had been looking for months, eager to find something before prices moved even higher. But time after time, they were discouraged by 100 people touring an open house, or a barrage of offers that would have forced them to bid more than what they were willing to pay.

So they changed their strategy, making offers immediately after agents tease that a property will be “coming soon” to the market.

In December, they set sights on a 2,000-square-foot (186-square-meter) house in San Jose’s sought-after Cambrian school district, only to find themselves competing with another early-bird buyer. Their agent, Rabeet Noor of Intero Real Estate, sent in his final counteroffer, amping up the urgency by setting it to expire in less than one hour. The seller accepted the $1.725-million bid — $100,000 over asking — and the couple closed last month.

“We still got into a slight bidding war,” Mr. Syal said. “That’s way easier than fighting 10 wolves at the same time.”

It helped that the chipmaker where his wife works has seen its stock soar. That provided reassurance to their mortgage lender and enabled the couple to sell some shares to make the 20% down payment, he said.

The monthly mortgage bill of $8,500 is a bit of a stretch, but Mr. Syal said it’s a calculated risk. If borrowing costs fall, they’ll simply refinance out of their current 6.375% rate.

Mortgage rates that surged over the past couple years have kept inventory in the area — and across the US — tight because few homeowners are willing to sell if it means giving up their cheap loans. Move-up buyers like Mr. Syal aren’t selling at all. He said he plans to fill his previous house with a tenant instead, while hanging onto the 2.25% mortgage.

The San Jose housing market — one of the most expensive in the world — has been on a roller coaster in recent years. Prices peaked in 2022 after Covid sent buyers racing to the suburbs, but then the market cooled with the surge in rates last year. The drop in borrowing costs from October’s peak helped set off the latest buying frenzy.

The pandemic migration to less-expensive places such as Nashville and Austin has slowed, and far fewer homeowners are leaving the Bay Area now. Net outflow fell to 26,000 in the fourth quarter, down 13% from a year earlier and just half of the level of the peak in September 2021, Redfin data show.

While high costs are still driving some people away, Silicon Valley keeps minting millionaires who see value in living close to their jobs. Buyer desperation is creeping back, especially in prized locations like Cupertino or Los Gatos, where few homes are available to buy, said Ms. Wyss, the Keller Williams agent.

She’s been trying to persuade a husband and wife, both earning big tech salaries, to bid a little higher. After a year of looking, they decided to go hard on a house in San Carlos that they really wanted. The asking price for the 1,600-square-foot property with canyon views was $2.35 million. They came in at $2.6 million and Ms. Wyss was told by the seller’s agent to not even bother trying $2.7 million. It sold to somebody else.

“We’ve been writing offers, left and right,” Ms. Wyss said. “We’re always like $50,000 behind.”

The city of San Francisco has been slower to recover than Silicon Valley, in part because it was hit so hard by the pandemic, with demand especially sluggish for expensive downtown condos. Well-located houses, on the other hand, are drawing a lot of attention, even before they officially reach the market.

Alexander Lurie, an agent with Compass in San Francisco, hosted an informal open house for a $3.5 million, three-bedroom property in the Marina District, on the same weekend the San Francisco 49ers were in the NFL Conference Championships.

Fifty-five parties came to tour the property — newly refurbished with an open floor plan and expansive backyard. After seeing all that interest, the seller bumped up the price to $4.5 million.

“We saw people come out when our hometown team is vying for the Super Bowl,” Mr. Lurie said. “If that isn’t a good sign, I don’t know what is.” — Bloomberg