Silicon Valley Housing Market Finally Cools Off After Extended Price Climbs
Are we finally seeing a slowdown in the Silicon Valley housing market?
Data seems to suggest so.
After record-breaking price climbs in the luxury housing market over the past few years, it looks like the tech-rich strip in the Golden State is finally entering a cooling off period. Homes over the $5 million mark took an average of 16 days to sell in April, compared to 11 and 10 days during the same months in 2015 and 2014, respectively.
After four years of bidding wars and skyrocketing prices entering multi-million dollar figures, the real estate market in the most expensive housing market in the US is finally experiencing a small pullback by some of the state’s wealthiest buyers.
So, what’s lead to the slowdown?
Chinese Investments Slowing Down
Financial markets in China, Greece, and other nations across the pond have been hurting over the past few months, and the economy on local soil has also seen better days. According to a report from PricewaterhouseCoopers, international investments in Silicon Valley dropped nearly 20% over the first quarter this year, compared to the same time in 2015.
Chinese buyers, who have been instrumental in driving housing prices up in the state, have scaled back their investments in California real estate. The Chinese government is cracking down on investment capital being sent outside Chinese borders.
Until very recently, Chinese investors had been purchasing around 5% to 7% of residential properties just in the San Francisco area alone. Net Chinese foreign exchange sales dipped to $23.7 billion in April from $36.4 billion the month before, and from $54.4 billion in January.
Tech Niche Cooling Off
Concerns over a slowdown in the technology industry may also be contributing to the dampened demand for homes in the higher price bracket, though interest in the more moderately-priced housing market continues to be rather strong.
Silicon Valley realized an unbelievable boom in the high-tech industry over the past few years, helping to contribute to the extremely high home prices we’ve been used to seeing in the area. But experts agree that such a boom is unsustainable, as is the job growth associated with the industry. At some point, a correction is likely inevitable. Right now, the decline is marginal, but some worry whether a decline will become more significant at some point in the near future.
Uncertain Economy
The global economy as a whole is on weak ground, and the economy on home soil is also experiencing a degree of difficulty. Buyers are more concerned about making a large purchase during times like these, and are more cautious about how they spend their hard-earned capital.
While mortgage interest rates are still very low, there’s concern over how soon and by how much they will increase following the Federal Reserve’s decision to increase rates this past December. And the fact that we’re in a presidential election year isn’t making matters any better. History suggests that consumer spending confidence tends to lag when a new person is slated to take over the country.
With uncertainty of the US economy plaguing the housing market, buyers are more apt to take more time before deciding to make offers.
Whatever the reason for the current cooldown in Silicon Valley, perhaps it was time for the local market to finally take a breather.
