The pandemic ushered in unforeseen consequences that are impacting consumer tastes and housing market valuations with unprecedented celerity. This article explores the trends caused by the pandemic that will have both positive and negative ramifications upon the Silicon Valley housing marketplace. While it is too early to tell how these trends will impact local housing prices in the long run, they boosted both home values and the number of sales in 2020. As we enter 2021, we are in a period of greater uncertainty than ever before, but we are hopeful that the resilience of Silicon Valley home prices will allow our market to continue holding up as the following housing trends unfold:
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1. The pandemic has made technology companies become more valuable. Many experts have hypothesized that the pandemic accelerated technological adoption by as much as a decade. New societal norms now include Zoom meetings, Netflix movies, DoorDash dinners, and overall, more time for social media and internet searches. Tech separating itself from all other industries is evidenced by the Nasdaq gaining 44% in 2020 versus just a 6% increase in the Dow.  Many prime Silicon Valley stocks fared even better in 2020, with Apple gaining over 80%, Tesla gaining an unprecedented 700%, and IPOs such as DoorDash and Airbnb also doing well. The greatest predictor of future appreciation in Silicon Valley historically has been the Nasdaq's rise or fall, so rising stock prices in 2020 bode well for rising home prices here in 2021.
   
   Note that this is a bifurcated recession. While unemployment is relatively high at 6.7% and could go higher, those who are losing their jobs are generally not techies in Silicon Valley, but rather those concentrated in the retail and hospitality sectors. The continued success of tech workers has helped California tax revenues, which were $26 billion above projected levels due to increased stock prices and capital gains taxes received. The increase in unemployment paradoxically coupled with rising tax revenues from stock sales illustrates the bifurcation of this downturn. 
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2. Residential real estate as an asset class will appreciate in value, whereas commercial and retail real estate will decline. Think of real estate in sectors. Commercial real estate values are already declining as more workers prefer and already are working partially from home. Retail is in trouble as more buyers are becoming more comfortable with e-commerce. As less time and money is spent on commercial and retail real estate, this will translate into more time and money being spent on residential real estate, which will further benefit home prices. The home has been redefined as a family sanctuary and now an office.  As people are forced to and become more comfortable with staying at home, they realize they want larger homes with more optionality. As 2021 begins, there is a dearth of inventory in Silicon Valley and high demand, therefore it is projected that home prices will continue to increase over the next few months.
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3. There is an exodus out of the crowded urban cities like San Francisco and New York, resulting in an increased buyer demand in the less dense suburbs, including Silicon Valley suburbs. The media sometimes combines San Francisco and Silicon Valley; however, they are very different living experiences and housing markets. Silicon Valley suburbs are much less dense and offer more land and privacy. The hillside communities in Silicon Valley have done very well during the pandemic, driven by an increase in buyers who have and will continue to flee denser urban environments in favor of suburbs for greater space and a higher quality of life. Technology companies and their employees are often exiting San Francisco and coming back to Silicon Valley. It is helpful to note that the companies that have adopted the most aggressive work from home models (e.g., Twitter, Salesforce, Square, Slack) tend to be in SF or NY, where the most densely packed office buildings are located, versus the expansive nature of Silicon Valley’s sprawling commercial campuses.
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4. Mortgage rates are at an all-time historic low. Before the pandemic, rates were at 4.25% for a 30-year mortgage. Today, however, rates are as low as 2.875% for a 30-year fixed mortgage. In response to the cooling of the economy due to the pandemic, the Federal Reserve has been actively trying to lower rates. Buyers should act quickly, as rates are now starting to rise again.
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5. Housing inventory is near record lows as sellers do not need to sell in this downturn. A fundamental difference between the 2008 “Great Recession” and this economic downturn is that in 2008 it was the implosion of the housing market that precipitated the recession. Conversely, in 2020 when we entered the pandemic, the housing market was strong, and the trends wrought by the pandemic made it even stronger. In fact, instead of being a drag on the economy, the strong housing sector and tech are the two brightest sectors in the Covid economy.
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One large trend that will negatively impact Silicon Valley home values is the ability to more readily work from home. Many economists have suggested that the pandemic accelerated tech trends that were already occurring and that over the next 2 years, we may see 10 years’ worth of tech adoption. Other trends that may have been accelerated include working from home in general and leaving the Bay Area. Back in 2018, nearly half of the techies surveyed said they planned on leaving the Bay Area in a few years. The pandemic precipitated many to take this opportunity to finally move out and they may not be coming back.

The exodus out of California is very real and has been chronicled in many articles. Just a week ago, U-Haul released their 2020 data and California had the lowest percentage of all 50 states of inbound moves. The top states for incoming residents are as anticipated, all low-cost states, including Texas, Florida, Nevada, Tennessee, and Wyoming.

The question that is unanswered is whether tech workers will return to Silicon Valley or whether their moves to “Zoom Town” second home markets will be permanent. Many tech titans such as Google are exploring “flexible work week options,” where employees will spend three “collaboration days” on campus. This new normal is viewed as optimally providing the creativity boost that synergistic teams generate while giving employees the freedom to control the majority of their schedules.
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It is too early to tell how the trends wrought by the pandemic will permanently impact the Silicon Valley housing market.  Although the vaccine will eventually put the pandemic behind us, the new freedoms of working from home and the mindset that it is not as essential to live in Silicon Valley may pervade well beyond the pandemic. At DeLeon Realty we are constantly analyzing the market and with having more economic training and analysis (for example, my being an adjunct Economics Professor in the past), we will be able to spot and analyze trends and accurately extrapolate their trajectory to provide clients with the best advice in our rapidly changing housing market.

Go to deleonrealty.com to sign up for our frequent webinars to learn the latest in housing trends or tax changes.

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