Home prices in Silicon Valley are up 11% in 2017. This follows a slow-down in 2016 to 3.5%, however is more in-line with 14%-18% in 2013-15. Home values have been increasing at a compound annual growth rate (CAGR) of 5.7% since 2000. Most Realtors and economist expect home value to continue rising over the next few years.
The chart above is the average across 12 Silicon Valley cities. The chart below is the 2017 YTD appreciation for the individual cities. Sunnyvale, Santa Clara and Los Gatos stand-out as the fastest rising cities, most likely due to being one of the more “affordable” areas within close proximity to high-tech jobs.
The next chart provides a 17-year perspective on rates of appreciation. Our 2017 rate of 11% is on the high-side, but not out of line. My expectation is that future rates will be slightly lower, say in the 8-10% range. This will continue the pressure on first-time home buyers trying to get into this market sooner than later.
A key reason to expect prices to continue rising is strong market demand and limited supply of new listings. The chart below shows the average days on market over the past 18 years. Homes have been selling very quickly for the past 5 years. 2016 showed a slight up-tick, which is consistent with the slower rate a appreciation noted above. Over half of the new listings sell within 10 days (after one weekend of open houses) with multiple offers.
The high occurrence of multiple offers is driving the final sales price over the stated list price. The chart below is the average for all listings. There is a huge difference for homes that sell after only one weekend on market, which are typically in the 10% to 20% over list range. This is mostly a result of market demand (multiple offers) and not due to artificially low list prices.
Looking forward to 2018, I expect the current market dynamics to continue. Silicon Valley companies continue to rapidly expand their workforce with expansive new office construction. Their relatively young workforce will continue to evolve into homes that are closer to their work. The potential limitation on the mortgage income tax deduction should insert some downward pressure on demand, but I suspect the impact may be like what we saw in 2016 in anticipation of the elections.
While affordable housing continues to be a big issue, we are fortunate to see that home ownership is a strong investment and one of the few ways to build the equity to afford a large home in the future.
Please feel free to email or call me with any questions or requests for market research that is more specific to your situation.