San Jose has seen the steepest decline in home buying among major California cities during the last two years, and the slide hasn’t let up yet.
A recent Insurify report reveals San Jose had a 31% drop in home buying between 2021-22, which local real estate experts said is due to a combination of factors—high interest rates, lack of housing inventory, tech layoffs and Silicon Valley employees shifting to remote work.
William Chea, president of the Santa Clara County Association of Realtors, said the housing market has shifted in the last two years with less people purchasing homes due to higher interest rates and a lack of housing options. It’s a reversal of the explosive market in 2020 when interest rates were low and competition among buyers was fierce across the city due to fewer houses on the market, he added.
From the outside it appears the market has cooled, Chea said, but in actuality it’s entering a new stage post-pandemic.
“It was a nuclear hot market, where the sellers were expecting to put the property on the market for ‘x’ amount of dollars and then they would probably get multiple offers,” Chea told San José Spotlight. “It seems that the market has slowed down, but when you look at the numbers, it really hasn’t.”
The Insurify report shows San Jose’s drop in home buying was greater than San Francisco, San Diego, Riverside and Los Angeles, which all had a 29% drop. Houses are also staying on the market longer, according to the report. Additionally, U.S. mortgage interest rates during 2020 were reported to be approximately 3%, and have since doubled to about 6%.
Last year San Jose had the worst housing shortage among major U.S. metro cities, and Zillow found the average mortgage in San Jose, including homeowners insurance and taxes, was more than $9,000 per month.
Holly Barr, a realtor with Compass, said San Jose sellers are reluctant to put their properties on the market now and are unsure whether they can afford a new place once they sell.
“People are not selling because they’re like, ‘Well, where am I gonna go? I don’t want to double my interest rate from 3% to 6%,’” Barr told San José Spotlight.
Instead, homeowners are choosing to rent out their properties, she said. San Jose’s rental market remains competitive, with last year averaging $3,501 monthly for a two-bedroom home and requiring a renter to have a $122,040 annual salary.
Kelly Dippel, a real estate advisor with Coldwell Banker, said the tech industry has also played a significant role, with Silicon Valley layoffs contributing to less potential buyers in town. A growth in remote work is another factor with families opting out of the Bay Area for cheaper housing. The report found California was in the top 10 in terms of states with the highest population drops between 2021 and 2022.
“We’ve had layoffs with Google and Facebook, so some buyers are a little bit apprehensive about getting into the market right now because of job security,” Dippel told San José Spotlight. “I would say within the last two weeks there’s more buyers out, so I do feel like it’s getting stronger.”
Chea said as the year progresses, interest rates will likely plateau and demand should pick up.
“We’re witnessing a gradual resurgence in the housing market,” he told San José Spotlight.
Contact Loan-Anh Pham at loa[email protected] or follow @theLoanAnhLede on Twitter.