“Lack of supply on steroids” in the heart of Silicon Valley
Frantic buyers compete to buy homes as tech return-to-office policies get serious
Coldwell Banker agent Bill Lister was prepared for multiple offers and a sale above the asking price on his recent listing in West San Jose, but he didn’t realize just how much attention the 1967 rancher would get from inventory-starved Silicon Valley buyers.
He priced the three-bedroom, two-bath house, which has a two-car garage, slightly under the appraised value of about $1.45 million, or $1,000 per square foot. The home was in good condition, but the finishes were hardly fancy.
Lister predicted about 15 bids and an accepted offer between $1.5 and $1.6 million.
Instead, the home, a trust sale, got 22 offers and sold for $1.7 million in eight days. The buyer had been outbid on five homes before this one.
“Somebody who really, really wants it and doesn’t want to lose will step up to the plate further than what most will do,” Lister said, especially “when you get to the point where you have more than 15 offers.”
Agents say that the lack of inventory throughout the Bay Area has collided with buyers who are ferocious in their appetites to get into a Silicon Valley home, usually because of return-to-work policies implemented by such tech companies as Apple and Meta in the fall.
“This train is going in one direction and one direction only,” said Dave Walsh, manager of Compass’ San Jose and Los Altos offices. “It will just get more expensive.”
Zero days on market
West San Jose is the California luxury market where homes sell fastest, according to a study by Point2, a real estate marketplace owned by Yardi, with homes in two zip codes there selling in just over a week, on average, between July and September of last year. Typical stock is a mid-century-era, single-story home with three bedrooms and fewer than 2,000 square feet. Yet about 90% of homes sell for more than the asking price, despite a median sales price around $2 million.
“This train is going in one direction and one direction only.”
The homes may be modest by most high-end standards, but they provide essential amenities for the families buying them: excellent schools, proximity to high paying jobs and open space. The area is also known for its upscale shopping at Westfield Valley Fair mall, which includes Chanel, Cartier, Balenciaga, Fendi, Burberry and Gucci, and Santana Row, a mixed-use development with housing, office space, a hotel, shopping and trendy dining.
West San Jose is not an outlier in Santa Clara County, which has six high-end zip codes where homes sold in 10 days or fewer, on average, in that same July to September time period. That’s by far the most in one county from Yardi’s list of 100 most expensive zip codes. The median price in some of Santa Clara’s hottest cities, which include Los Altos, Cupertino and Sunnyvale, can get as high as $4 million.
“The desirability of these areas, combined with competitive bidding, plays a significant role in their rapid sales,” said Alexandra Ciuntu, who authored the Point2 study, adding that zip codes in several San Francisco, East Bay and Marin locations also made the list, though all had slower sales and a smaller percentage of over-asking sales than Santa Clara.
High prices are the norm in this region, but, “It’s the level of demand and competition that sets Santa Clara County apart in terms of quick home sales,” she said.
Even spending a week on the market in these top zip codes may be “artificial,” said Walsh.
“Every one of these properties has pre-emptive offers,” he said. “They could have zero days on market if the sellers were so inclined.”
Most sellers prefer to “play the multiple offer game,” he said.
Some agents price their listings low in order to elicit multiple offers; those sales can go for nearly $1 million over asking. Most don’t even bother and start off just below market rate because buyers bid them up anyway. On average, accepted offers are 6% above list price, according to his figures.
Zero contingencies are also the norm, Walsh added, as buyers fear losing out if they put any restrictions on their deals.
“It’s lack of supply on steroids,” Walsh said.
There are 1,048 properties for sale in Santa Clara County right now, including condominiums, the least expensive, and $15 to $20 million properties, according to Walsh’s market data. In a normal year, there would be at least double that, he said, blaming the inventory drought in large part on people who bought in or refinanced at a 3% interest rate and would put their properties on the market if carrying costs were higher.
Homeowners with starter properties are unlikely to cash out or move up until interest rates drop to 6% or lower, Lister said. Plus, due to California’s Proposition 13, which caps property taxes based on the sales price, sellers encounter a tax hit if they move to a bigger, more expensive home.
“People selling these days are selling because they have to,” he said. Deaths, births and job relocations are the main reasons homes hit the market.
With a median sales price around $2 million, West San Jose is considered something of a bargain in the South Bay.
It shares the same well-regarded public and private schools and quick commute times to tech firms as pricier communities like Cupertino and Sunnyvale. Lister’s West San Jose rancher, for example, is a 5.5-mile drive from Apple’s Cupertino campus and about 7 miles, via I-280, to Adobe World Headquarters. But West San Jose’s prices are lower than its neighbors, fueling the bidding wars.
“A lot of buyers are being cost-conscious,” said Compass agent Dawn Thomas, who represented the buyers of a home around $2.3 million in West San Jose last fall after they wrote offers on two previous properties.
It was appealing in part because it feeds into the same school district as neighboring Saratoga, she said. For a Saratoga address in the district, she estimated that an equivalent home would cost as much as $750,000 more, depending on lot size.
The tech effect
Many of Thomas’ clients work for the “major big name tech companies,” she said, and “some of those companies are certainly requiring more time in the office for culture and teamwork.”
Lister said he recently had two clients who came back to Silicon Valley because of return-to-office mandates.
“They had to come back here because Apple called them back,” he said.
Each chose to deal with the lack of inventory differently. One client had bought a home outside Sacramento during the pandemic but could no longer bear the commute to Cupertino. The client’s new Santa Clara County home cost twice as much as the Sacramento spot, but it has half the square footage.
Another client is renting an apartment near the office while keeping a pandemic-purchased house in Las Vegas, preferring to fly back and forth each week rather than deal with buying a Silicon Valley house in the current market.
Lister said he saw the conundrum coming.
“I used to tell people in Covid, ‘Do you really want to sell your house and move to Texas? You may want to rent it out and see if you like Texas, because you may not be able to come back,’” he recalled.
Since many of the buyers are in tech and have lucrative stock grants, they can make large down payments or pay in all cash, shielding them from high interest rates.
In fact, this group is especially motivated to get in now before interest rates drop next year, as they are expected to. When mortgages become more affordable, more buyers may jump into the overcrowded pool, Walsh said.
“We’re selling more houses today at a faster pace at 7% interest rates than we did at 3.6%,” he said. “[Buyers] are paying hundreds of thousands over the asking price, even with 7%-plus mortgages, because their belief is that it’ll only get worse.”
Their hunch is probably right, said Thomas.
“The moment interest rates go down further than they are now, competition goes up,” she said.