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Silicon Valley’s luxury home market heats up amid AI boom
The explosive growth of artificial intelligence companies is driving San Francisco’s luxury real estate market.
Sales of homes valued at $5 million or more in Santa Clara County — home to Silicon Valley — soared in April. The median home price is nearly $1.8 million, according to real estate agency Compass.
Analysts and local agents attribute the rise to the success of technology companies, most notably in the AI industry.
“There has been a huge increase in value in the stock markets, especially the Nasdaq (^IXIC), [which] “It’s especially important for the Bay Area because we have a lot of high technology,” said Patrick Carlisle, San Francisco Bay Area chief market analyst at Compass. “When families see their family wealth increasing by leaps and bounds so This quickly increases their confidence and of course just increases the amount of money they have to buy houses.”
Glafkides’ previous Silicon Valley listing sold for $14 million. (Sia Glafkides) (Sia Glafkides)
San Francisco is no stranger to technology-led market tailwinds
Silicon Valley’s real estate market has always risen and fallen along with the technology sector.
“[Home prices] are highly correlated with the technology industry,” Ken Rosen, a retired professor at the Berkeley Haas School of Business, told Yahoo Finance.
The dot-com bubble began around 1995 and peaked in 2000. Investment in the World Wide Web flooded Silicon Valley. The Nasdaq index reached 5,000 for the first time.
Compass data shows that median home prices in San Francisco grew by double digits between 1997 and 2000, reaching an annual gain of nearly 30% and rising above $500,000 threshold for the first time in 2000.
“I think the San Francisco Bay Area in particular is more susceptible to booms and busts because of the way high-tech has become a dominant industry over the last 30 to 40 years,” Carlisle said. “Because of the dot-com boom, which was very localized… [home price appreciation] in San Francisco and Silicon Valley it was very, very dramatic. When that dropped, we saw a decline in [home] prices.”
The rise of social media after the financial crisis brought another wave of enormous wealth to the Bay Area. The Nasdaq – where Microsoft, Google, Meta and Apple are listed – increased by around 260% between 2010 and 2020.
Median home prices grew by double digits in seven of the 10 years of that decade, exceeding $1.6 million.
The luxury market boom
So far this year, local agents have seen increasing demand for luxury homes.
“Thirty to 40 groups stopping by on an open house day” is typical, said Dave Walsh, vice president of Compass’ Santa Clara County office. “So by the end of the week, most of our new homes that have just hit the market in this higher-end segment will be under contract.”
The story continues
The median house in Santa Clara County remains on the market for nine daysalmost a month shorter than the national median of 35 days. According to Redfin data, nearly 80% of homebuyers pay above the asking price. The number of homes sold over $5 million in Santa Clara County increased in April to 34 from 19 a year ago, according to May 2024 Compass Report.
Sia Glafkides, a veteran agent with Bay Area Compass, said even luxury homes that had been on the market for several months began being snapped up earlier this year.
“People are in the technology business,” Glafkides said, “and they have a lot of stocks they can cash out.”
Silicon Valley employees often receive stock as part of their compensation. As AI and technology companies have taken off in recent months, equity wealth has spread to workers who own parts of the companies.
“Many of them became millionaires or billionairesliterally over the course of a year, and that affects how the market dynamics work,” Carlisle said.
Nvidia (NVDA), O “poster boy of the AI boom“based in Santa Clara, saw its market capitalization soar 239% in 2023 and is up to $1 trillion by now in 2024. Advanced Micro Devices, Inc.OMG), another Santa Clara company investing in advanced AI technology, has seen double-digit growth this year.
Nvidia’s global headquarters located in Santa Clara. (wellesenterprises via Getty Images) (wellesenterprises via Getty Images)
“This is happening with other AI companies throughout the Bay Area,” Carlisle said. He added that Nvidia and its ecosystem have created immense wealth in Silicon Valley.
Santa Clara’s most expensive homes are concentrated in Palo Alto, Los Altos Hills, Los Altos and Saratoga – suburbs surrounded by the world’s largest technology companies, such as Meta, Google and HP.
Homes available for sale are rare; high-end buyers have “maybe 25 to 50 options at most,” Walsh said.
Median home prices in these cities range from $3.5 million to nearly $5.6 million, according to Compass.
“People who are lucky enough to have the right stocks right now are taking advantage of that,” Walsh said. “They are converting [wealth] from stocks to real estate and securing the dream home they’ve always wanted.”
However, one expert says it’s too early to attribute the Bay Area’s real estate boom to AI.
“The number of jobs in AI is still not very large,” Enrico Moretti, a professor at the University of California, Berkeley, told Yahoo Finance, noting that less than 1% of employment in the Bay Area is currently in AI. “It may have an effect, but I don’t think it’s a huge effect.”
But that could change as the industry continues to expand. As AI becomes increasingly intertwined with everyday life, employment opportunities could increase significantly.
“So we could expect an effect not just on luxury but also on average consumption. [housing market]”, Moretti said.
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
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