Is This The End For Silicon Valley?
Rachel Burris6-Minute Read
January 19, 2021
- Silicon Valley is no longer a seller’s market. For the first time since 2012, homes are coming onto the market faster than buyers can scoop them up.
- Two out of three Silicon Valley residents who applied for a loan with Rocket Mortgage® in 2020 are looking to leave the area.
- According to Rocket Mortgage® Loan Application Data, interest in leaving Silicon Valley has risen 79% since 2012.
- Former Silicon Valley residents are seeking loans in Texas and Nevada that are respectively 45.7% and 51.7% higher than the average state resident’s.
Extreme housing prices have long been a frustration for Silicon Valley residents, but the costs were considered by most to be a necessary evil. For those working in the tech world, living in Silicon Valley was a must.
However, that’s no longer the case. Now that COVID-19 has prevented millions of Americans from going into the office, tech workers can work from anywhere, and many will be for the foreseeable future.
This summer, Google announced that employees will continue working remotely until at least June 2021. Facebook extended its policy through July 2021, and Twitter revealed that it will allow their employees to work from home indefinitely – that is, from wherever they want home to be.
Without the need to physically be in the country’s largest tech hub to take advantage of its highly paid positions, it’s questionable whether Silicon Valley residents will feel the need to stick around. Therefore, we must ask, what will happen to Silicon Valley as work from home continues to be a normal part of our everyday existence? To find out, we took a closer look at the market.
Silicon Valley Is No Longer A Seller’s Market
As Silicon Valley has grown to be the center of the nation’s tech industry, the demand for housing in the area has grown with it. The steady stream of highly paid tech workers entering the market has jacked up real estate prices and historically caused Silicon Valley to experience a seller’s market.
More recently, the supply has been outpacing the demand. Listings have grown by 48% year over year, while sales have increased by only 22%. With listing growth double the sales growth, Silicon Valley is in the midst of a neutral market for the first time in nearly a decade.
Although the inventory has risen tremendously, purchase prices in the area have also increased. In October, the median purchase price was $1,366,817, which marks a 12.4% increase since last year. While this price increase may seem atypical for a neutral market, it’s negated by the drop in interest rates.
Silicon Valley’s Condo Market Is Really Suffering
In Silicon Valley, condos have long been the more affordable housing option. While the median purchase price for a single-family home is now just over $1.5 million, condos are half the price.
Listings for condos in the Valley are up 62% year over year, but sales have only increased by 6%. Now, with nearly a 6.5 months’ supply, the condo market is struggling. The market absorption rate has more than doubled in 2020, and due to the pandemic, buyers’ needs have significantly changed.
According to Chisholm Gentry, a Silicon Valley-based Rocket Homes® Verified Partner Agent, people working in the tech industry appear to be re-evaluating their living conditions. “When you’re working 10 – 12 hours at a start-up, you come home. You eat a quick bite. Your head hits the pillow. You’re done – onto the next day,” Gentry explains. “If you’re sitting in a two-bedroom apartment with your significant other, both working at home with the dog and maybe a kid, it starts to break down a little bit. And, you’re less able to function as a professional in that type of environment.”
The median purchase price of a condo was $747,269 in October, marking just a 1.5% increase since the same time last year. However, the fact that interest rates have dropped nearly 1% during that time suggests that the price of condos has effectively decreased.
Now that COVID-19 is forcing individuals to spend more time in their homes than ever before, and tech companies are allowing their employees to work from anywhere, Silicon Valley residents have the ability to make a change to their living arrangements. “So, we are seeing a lot of folks who are saying, ‘Well, now’s the time. I’ll go buy the single-family home. I can put the kid in the backyard, and I don’t have to worry about him. I have an extra bedroom or two for an office,’” Gentry adds.
However, with the Valley’s exorbitant prices for single-family homes and the new flexibility of companies’ work-from-home policies, buyers are now looking at homes outside of the tech hub. By leaving the area, former Silicon Valley residents can find more square footage for more affordable prices.
They May Be Leaving, But Most Aren’t Going Too Far
Leaving Silicon Valley is not a new trend, but the pandemic appears to have exacerbated it. We have found that nearly two out of three Silicon Valley residents who applied for a mortgage are looking to purchase a home in a different area. This number has increased by 79% since 2012.
Although residents have the green light to work from anywhere, the majority are not going too far. For the most part, they seem inclined to stay within state: 66.4% are seeking homes in less expensive markets within California. Of those planning to remain in state, 67% are interested in purchasing a home that’s within a 2-hour drive of Silicon Valley.
As a software engineer for one of the largest players in the Valley explains, “I think that the ability to work from home and move out of the city is not something that most people wanted to do but instead feel is financially practical.”
By moving to more affordable parts of California, former Silicon Valley residents can benefit from a lower cost of living and a larger residence while still being a drive away from the tech hub when life returns to normal.
That being said, the number of individuals moving within California is actually down 4.4% year over year. More Silicon Valley residents are looking to move to other states than before the pandemic. For those willing to leave the Golden State, 6.2% are interested in settling down in Texas.
Interest in Texas has grown 8.3% year over year, and it’s not just residents who are motivated to make the move. Over the last few weeks, there have been a number of similar announcements out of Silicon Valley, including from the area’s pioneers. Hewlett Packard Enterprise reported that it will be moving its headquarters to Houston. Oracle will be relocating to Austin, and Elon Musk has already set up shop in the Lone Star State.
Silicon Valley residents are also thinking of making Nevada their new home. The state has seen a 15.5% increase in interest year over year. It’s unlikely a coincidence that they’re flocking from the state with the highest income tax to states that don’t have an income tax at all.
They’re Spending More Than The Average
Silicon Valley residents are obtaining loans for homes that are 27% higher in value than the state average of where they’re looking to move. However, the fact that they’re buying more expensive homes than the average state native may not be as surprising when you consider their salaries.
In Texas, former Silicon Valley residents are seeking loans that are 45.7% higher than the average Texan. In Nevada, their loan amounts are 51.7% higher than the average Nevadan. Yet, the median household income in Silicon Valley is $123,348.
On average, Silicon Valley defectors earn 99% more than the average Texan and 104% more than the average Nevadan. Therefore, those leaving Silicon Valley may be spending more everywhere they go, but they’re still earning far more than the typical resident.
It’s this ability to earn Silicon Valley wages in areas of the country that have much lower costs of living that jeopardizes the tech hub’s future. For, why would you return to such a high-cost area when you could make the same in a place where your dollar goes much farther?
It seems that Facebook has caught on to this potential employee advantage, having announced this summer that it would reduce the salary of any employee who chooses to work in a more affordable area of the country. By localizing compensation, the company may actually be doing its part to ensure that this is not the end for Silicon Valley.
To get a clearer picture of how the ability to work from anywhere is impacting the Silicon Valley population and real estate market, we began by analyzing Rocket Homes® listing data. Through this data, we compared listings and sales for Santa Clara County and San Mateo County from October 2020 and October 2019 to determine how the market has changed year over year. To find out where individuals living in Silicon Valley are looking to move, we examined Rocket Mortgage® Loan Application Data.
All data on median household income was sourced from the U.S. Census Bureau. To determine how much money Silicon Valley residents typically make, we took the average median household income for Santa Clara County and San Mateo County.
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