Navigating the South Bay Area Real Estate Market: A 2024 Market Forecast
The Bay Area real estate and housing landscape has seen a shift over the last year, similar to the rest of the nation, in response to the mounting challenges around home affordability as the Fed continues to battle inflation by increasing interest rates. The interest rate hikes that began at the late end of 2022 edged buyers on the fences out of the market as rates peaked at ~8% in some areas of the U.S. during 2023.
The South Bay Area, heart of the Silicon Valley, has a long history of high home price appreciation and stands as a beacon of opportunity and growth for many prospective transplants seeking to join the highly attractive tech startup marketplace. However, the tech industry has recently been hit by waves of layoffs, and this is sure to have an impact on the housing demand in San Jose and the South Bay Area.
As we step into the new year, understanding the trajectory of this dynamic market becomes imperative for real estate professionals, investors, and aspiring homeowners alike. This post delves into my thoughts on the forecast for the South Bay Area real estate market in 2024 and some valuable insights and expert perspectives.
Historical Market Trends: Setting the Stage
A line chart depicting the median sales price over the last 20 years for homes located in Santa Clara County (South Bay Area).
Before peering into the future, examining the historical context that shapes the South Bay Area's real estate market is crucial. Santa Clara County has witnessed a remarkable surge in property values, population growth, and economic activity throughout the region for the last few decades. Silicon Valley's thriving tech industry, favorable climate conditions, and unparalleled quality of life have propelled the South Bay Area into the spotlight as a highly sought-after destination for residents and entrepreneurs. The South Bay area is home to some of the most affluent cities in the nation, San Jose being the largest among them.
In the early ’00s, the median home value in Santa Clara County was around $370,000. Fast-forwarding to today, the median value is now around $1.365MM - that’s about a 3x price valuation increase during the 20-year run. Given the current economic conditions, home price appreciation data suggests this trend will continue to increase through this year, at a slightly slower rate.
Forecast for 2024: Navigating the Unknown
Drawing upon current market indicators and expert predictions, we can confidently assert that the South Bay Area real estate market is poised for continued expansion in 2024. While these are just predictions (read: opinions), I will try to present as much data that would support the claims asserted. Several key trends will define this upcoming year:
Persistent High Demand
The South Bay Area's allure shows no signs of waning. Although layoffs are trending in the headlines and are meant to induce panic and fear (and clicks), San Jose and the South Bay Area will continue to see tech job creation and a scarcity of available housing inventory - creating the perfect concoction for a robust demand for housing. As the tech sector moves toward AI integration and adoption, this heightened demand will likely translate into intense buyer competition and sustained upward pressure on prices.
Article to read: Mercury News - Bay Area job market surges with big December gains to cap off 2023.
Price Appreciation: A Steady Ascent
Historically, property values in the South Bay Area have exhibited consistent appreciation over the years, and this trend is expected to persist in 2024. However, it is important to note that the rate of appreciation may witness a slight downward correction compared to recent years due to rising interest rates and potential economic uncertainties.
This is likely to have a modest impact on the home price appreciation index for properties in Santa Clara County. For Q4 2023, the Home Price Appreciation (HPA) index reported a .6% decrease between Q3 and Q4 2023 (quarter over quarter) but a 5.6% appreciation rate year-over-year from 2022 to 2023. The small decrease at the end of 2023, is likely due to seasonality and hinting at a year-over-year price increase as consistent with our predictions.
If you’re interested in more Home Price Appreciation information, you can access the full report here to see which metros across the nation experienced gains/losses.
Limited Inventory: A Seller's Advantage
With the wave of tech talent surging in Silicon Valley, San Jose, and the South Bay Area have long been characterized by a supply-demand imbalance favoring sellers. This trend is anticipated to continue in 2024, as the supply of available homes struggles to keep pace with the insatiable demand.
Discussing housing supply, in a side-by-side comparison between the number of active homes on the market per month between 2022 and 2023, the number of active homes in Dec. ‘23, was about 30% lower than the amount of homes that were available in Dec. ‘22 (778 homes v. 1096 homes). See the visual below for the full view.
A bar chart depicting a comparison of the active number of homes on the market each month during 2022 and 2023 for homes located in Santa Clara County (South Bay Area).
The scarcity of inventory will likely maintain elevated price points, especially for single-family residences with ample land space where these properties are highly sought after by families and investors. This empowers sellers in the negotiation process for striking a higher sale price, however, they should remain open to considering some concessions for buyers as buyer affordability continues to be an issue.
Buyer Considerations: Balancing Affordability and Desires
In the face of rising interest rates and inflationary pressures, buyers are expected to adopt a more discerning approach to their purchasing decisions. Although available land space will be highly desired by most buyers; affordability, energy efficiency, and proximity to essential amenities will become increasingly paramount considerations for potential buyers navigating the 2024 market. With the rise in basic consumer goods and increasing return-to-office pressures by employers, buyers will have to balance the cost of a long-term investment in their dream home at the expense of immediate payment affordability due to higher interest rates.
From a mortgage rate perspective, good news is on the horizon for buyers, as rates continue to show signs of softening. Mortgage rates peaked at 8% in 2023, and have steadily started to waver since, currently residing in the high-6s range. The prediction for this year is that we will see mortgage interest rates closer to the 5% range in the latter part of this year - most likely bottoming out around 5.8%. Just in time for the usually hot South Bay Area summer housing season
Article to read: Business Insider - Will Mortgage Rates Down in 2024?
The Tech Industry's Unwavering Influence
The tech industry remains an indomitable force shaping the South Bay Area's economic landscape. It’s not called the Silicon Valley for no reason! The influx of tech giants and skilled professionals will continue to impact the local real estate market, especially in San Jose, where Google has plans to develop a massive “Google plex” close to the downtown region. This project is expected to create thousands of new homes and more retail space in the downtown San Jose area. While the project has yet to break ground, the impact of its completion is potentially going to drive increased demand in neighborhoods proximate to major tech hubs.
Get caught up on the Google Downtown West project and other major Silicon Valley developments - San Jose Spotlight here.
Embracing the Future with Informed Decisions
As we journey into the uncharted waters of 2024, the South Bay Area real estate market beckons us with opportunities and challenges alike. Data-driven insights indicate a promising trajectory of sustained growth, albeit at a potentially moderated pace compared to recent years due to sustained buyer affordability challenges.
For those contemplating buying or selling property in this dynamic market, staying informed and partnering with a knowledgeable real estate professional will be instrumental in navigating the complexities successfully. By embracing data-driven forecasts and tapping into expert guidance, you can confidently chart your course in the ever-evolving landscape of the South Bay Area real estate market.
Feel free to reach out to your local agent, Harold Stephens with any questions at 408.921.6416 or here on my site. I’d be happy to assist you in accomplishing your real estate goals in any way I can!
Happy house hunting!
