The explosive growth of artificial intelligence companies is fueling San Francisco's luxury real estate market.
In Santa Clara County, home to Silicon Valley, sales of homes priced above $5 million surged in April, where the median price is about $1.8 million, according to real estate firm Compass.
Local analysts and agents attribute the bull market to the success of technology companies, particularly in the AI industry.
“The stock market has seen a huge increase in value, especially the Nasdaq (^IXIC). [which] “This is especially important in the Bay Area because of the tech boom,” said Patrick Carlisle, chief market analyst for the San Francisco Bay Area at Compass. “When households see their wealth growing so quickly and exponentially, it increases their confidence and, naturally, their ability to buy a home.”
San Francisco is no stranger to tech-driven market tailwinds.
The Silicon Valley real estate market has always risen and fallen along with the tech sector.
“[Home prices] “There's a very high correlation with the tech industry,” Ken Rosen, a former professor at Berkeley Haas School of Business, told Yahoo Finance.
The dot-com bubble began around 1995 and peaked in 2000. Investments in the World Wide Web flooded into Silicon Valley. The Nasdaq index hit 5,000 for the first time.
San Francisco's median home price grew double digits between 1997 and 2000, increasing nearly 30 percent per year, and surpassed the $500,000 threshold for the first time in 2000, according to Compass data.
“I think the San Francisco Bay Area in particular is subject to booms and busts because of how tech-dominated it has been over the last 30 to 40 years,” Carlisle said. “Because of the dot-com boom, which was very localized… [home price appreciation] The economy of San Francisco and Silicon Valley fell dramatically. When it collapsed, [home] “price.”
The rise of social media after the financial crisis brought a new wave of huge wealth to the Bay Area: Nasdaq, home to Microsoft, Google, Meta, and Apple, grew by about 260% between 2010 and 2020.
In seven of the last 10 years, the median home price increased by double digits, surpassing $1.6 million.
Luxury market booms
So far this year, local real estate agents are seeing increased demand for luxury homes.
“We typically have 30 to 40 groups come through on open house days,” says Dave Walsh, vice president of Compass Santa Clara County's office, “so by the end of the week, most of the luxury homes that are new on the market will be under contract.”
The median time homes in Santa Clara County stay on the market is nine days, about a month shorter than the national average of 35 days. About 80% of homebuyers pay more than the asking price, according to Redfin data. The number of homes sold for more than $5 million in Santa Clara County rose to 34 in April, up from 19 a year ago, according to Compass' May 2024 report.
Even luxury homes that have been on the market for months are starting to sell earlier this year, said Thea Grafkides, a veteran real estate agent with Bay Area Compass.
“There are people in the tech industry,” Grafkides said, “who have a lot of stocks they can cash out.”
Silicon Valley employees are often given stock as part of their compensation, and as AI and tech companies have boomed in recent months, stock wealth has flowed to employees who own part of the companies.
“A lot of them have literally become millionaires and billionaires in the space of a year, and that's impacting market trends,” Carlisle said.
Nvidia (NVDA), the Santa Clara-based “poster boy of the AI boom,” is expected to see its market cap soar 239% in 2023 and add $1 trillion so far in 2024. Advanced Micro Devices, Inc. (AMD), another Santa Clara company investing in advanced AI technologies, has seen double-digit growth this year.
“This is happening with other AI companies across the Bay Area,” Carlisle said, adding that Nvidia and its ecosystem have generated enormous wealth in Silicon Valley.
Santa Clara's most expensive homes are concentrated in suburbs like Palo Alto, Los Altos Hills, Los Altos and Saratoga, which are surrounded by some of the world's largest tech companies, including Meta, Google and HP.
Homes for sale are rare, leaving buyers looking for a higher-priced home with “at most 25 to 50 options,” Walsh said.
Median home prices in these cities range from $3.5 million to nearly $5.6 million, according to Compass.
“The lucky ones who have the right stocks right now are taking advantage of it,” Walsh said. “They're [wealth] From stocks to real estate to getting that dream home you've always wanted.”
But one expert says it's too early to blame AI for the Bay Area's housing boom.
“The number of AI jobs is still not that high,” Enrico Moretti, a professor at the University of California, Berkeley, told Yahoo Finance, noting that less than 1% of jobs in the Bay Area are AI-related. “It may have an impact, but I don't think it will have a big impact.”
But that could change as the industry continues to expand. As AI becomes more and more integrated into everyday life, job opportunities could increase significantly.
“That would hopefully have an impact on the average consumer, not just the luxury goods sector. [housing market]” Moretti said.
Rebecca Chen is a reporter for Yahoo Finance and previously worked as a certified public accountant (CPA) in investment tax.
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