While some economists believe this is a sign of the overall economy reaching a recession, there is strong evidence pointing towards it being caused by housing prices growing too high. Online loan marketplace, Lending Tree, made a list of the U.S. cities with the highest percentage of houses valued over $1 million. San Jose was placed at #1 with about 208,745 homes making up 56% of all homes and San Francisco came in 2nd with about 395,858 homes making up about 42%.
With such high prices, even techies at tech startups with their crazy out-of-college salaries can't afford the down payments on the property. As home prices grew really quickly over the past several years throughout the economic recovery, they’ve become increasingly unaffordable, and that makes it really hard to afford that down payment — so that’s why we see the slowdown,” Zillow economist Sarah Mikaitarin said.
Another possible cause could be due to the tumultuous stock market. This chaos could be scaring buyers away from Silicon Valley property right now. Even though interest rates are low right now, not many people are entering the housing market. People do not want to make big financial decisions when they don't know how safe their investment may be in the market.
A final theory by economist Mark Zandi is the newly implemented $10,000 limit on federal deduction from state and local taxes. This has weakened house prices due to the higher taxes caused by a limit on deductions.
Right now all we can do is try to predict what will happen next, which is very difficult in Silicon Valley's often unstable and constantly changing market.
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I think that it is important to see the reasons behind Silicon Valley's unpredictable housing market as it gives some explanation as to why people make the choices they do when it comes to buying a home. The Bay Area is known for its crazy housing prices. Many other cities in the U.S. have insanely priced housing as well, such as New York City, which is ranked #1 as the most pricey city to live in the U.S. It would be interesting to compare the stock market and the city itself to the Bay Area to see what similarities we could find.
ReplyDeleteIt seems like the Bay Area's crazily high house prices have finally reached a tipping point, and may, for once, be on the way down. Perhaps prices have grown too high that they are too high for consumers, and that sellers have not been able to find enough buyers. This especially could be the case, as a great deal of tech workers for companies in San Francisco and in Silicon Valley make long commutes to work, meaning that new home buyers have been buying homes further away from their offices in order to save money.
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