Wolf Richter: Housing Bubble Trouble in Silicon Valley & San Francisco

By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street

Housing inventory listed for sale in the two counties that make up Silicon Valley – San Mateo County and Santa Clara County – and in the county of San Francisco, surged by 113% in December compared to December last year, to 2,691 active listings, the most for any December since 2013, when the area emerged from Housing Bust 1. December is usually near the annual low point in terms of listings, but not in 2018, when listings in December were higher than in each of the first five months that year.

The chart below shows the year-over-year percentage change in active listings. The bars in red denote when the underlying dynamics of the housing market changed direction (all data via the National Association of Realtors at realtor.com):


The shift is now becoming more obvious in Silicon Valley and San Francisco, among the most expensive housing markets in the US with median prices for single-family houses ranging from about $1.2 million in Santa Clara to about $1.5 million in San Mateo.

With inventories for sale rising, as sales are slowing, a whiff of competition is settling in among sellers, who have to determine where the market is today, not where it was last year, and if they want to sell their property, they have to price it where the buyers are. But buyers aren’t where they were a year ago, and the bidding wars have receded into history, and mortgage rates have jumped from a year ago. The right property, priced right will sell. But if it’s priced off the market, it will likely sit. This is starting to sink in. And sellers are cutting their asking prices.

In December, the number of properties on the market with price cuts in Silicon Valley and San Francisco combined skyrocketed by 455% from a year earlier to 444. This chart shows the year-over-year percentage change for each month, with the red bars denoting when bubble trouble began:


The median asking price for the three counties had peaked in May 2018 at $1.37 million but has since plunged by $170,300 or by 12% from the peak, to $1.2 million. Median asking price means half the properties are listed for more and half are listed for less. It differs from the median selling price at which homes are actually sold. This was the lowest median asking price since August 2017:


Compared to December last year, the median asking price dropped by $100,000 or by 7.7%. The chart below of year-over-year dollar changes in median asking prices shows to what extent a new sense of reality about the direction of the market has crept into asking prices over the past two months:


And these are still the boom times in Silicon Valley and San Francisco. There is some anecdotal evidence that some of the tech companies are slowing down some moonshots or expansion projects or are cancelling later phases, and some startups have trouble getting funding.

But a slew of massive IPOs are being hyped for 2019– Uber, Palantir, Lyft, Airbnb, and the like – before the Nasdaq craters, thereby shutting the IPO window. And this tsunami of mega-IPOs was hoped to flood the land with cash, as investors and employees start selling their shares. These hopes still exist, and at least some of those IPOs will happen this year. While the water is a little ruffled, these are still the boom times in the Bay Area.

And that the underlying dynamics of the housing market have changed direction is – this time – not a result of the tech bust. That hasn’t happened yet. Is just the housing market turning on its own.

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    1. The Rev Kev

      Read an article in the past coupla days about the same happening for Canada. Is this a general trend? These are not figures that you can hype on Wall Street but real world effects of something going on in the real economy.

      1. margaret bartley

        Same thing in Seattle. “As sales plunge, King County home inventory has biggest jump on record”, Oct 4, 2018,

  1. Kevin

    Seeing this trend here in Denver. Realty folks shrug it off and say it’s just season trends, but I’ve been watching the market for years and this is the most inventory I’ve seen in a decade.

    1. Arizona Slim

      I’m seeing the same thing in Tucson: More inventory than in years past. And more price reductions.

    2. JohnnySacks

      Let it all go straight to hell – the worse it gets, the better. The market is nothing more that parasitic deliberate intergenerational theft and debt servitude.

      1. Milton

        Why intergenerational? Are you deliberately muddying, what can be described as a classist issue, with this neoliberal trope?

        1. ambrit

          It could be an unconscious repetition of a preprogrammed meme.
          Agree that class is still the best way to understand this.

        2. Lost in OR

          The last generation was able to buy at pre-bubble prices and is now selling at peak(?). If it’s older stock, it’s probably in need of an upgrade.

          Picture buying a nice new Vega in 1976, driving it for 40 years, and then selling it as if it were an asset, at premium prices, to newby’s in the market (and their financier), who haven’t the capital for anything better.

          As a former remodeling contractor I would suggest that we build houses like we built Vega’s.

          1. RMO

            “Like we built Vegas”? So the furnace falls apart after a year and the walls and foundations dissolve in the rain?

            1. Scramjett

              Although I found your response hilarious, I believe Lost in OR was referring to the concept of manufactured homes. I’m not sure how effective that would be, though. My understanding is that most home values are tied into the value of the property, not the construction. People buy for the location. Why else do you think lake-, river-, and ocean-front properties are astronomically high while property in the ghetto or middle of nowhere in wildfire land are dirt cheap? In California, if you find 10 acres or more for less than $100,000, there is probably something wrong with it.

    3. Yves Smith Post author

      I can’t be as official about it, but in Mountain Brook (very tony, looks like Scarsdale), I see more houses for sale than I have since in the years right after the crisis.

  2. Tom Stone

    You can see the same pattern in Sonoma County.
    Not a surprise to anyone who has been watching the market.

    1. Cal2

      Took a New Years trip to Sausalito the other day.
      Saw an average size and quality houseboat offered for $1.4 Million.
      Not even new, “Pre-Owned” :-)

      What I’ve been focusing on are not the mega mansions and custom homes, but the average crap shacks that a carpenter would buy, fix up and resell, usually in firetrappish locations in the hills.
      Fantasy prices and months on the market. I think the body counts from the PG&E fires are making people rethink certain locations as dangerous. Oh well, at least the 1.4 million dollar houseboat would be safe from fire. Were there a tsunami, they might even have a new inland location and a different view afterwards.

  3. Todd

    My first impression is that people are starting to realize the impact of the Tax changes. There is now a cap in place on how much a house can be worth before the state tax liability becomes too great and can no longer be deducted from your federal tax returns.

    In general, houses in silicon valley at current valuations have now become too expensive to own or live in.

    I think we are going to see something similar to the 1985 tax reform where losses on commercial property were capped at 3k per year. This ended the use of money losing properties to offset income producing properties for lowering your over all tax bill.

    I could see a possible localized housing bust in areas like this.

    Also, I can see added wage pressures building to offset this, the tech titans have successfully suppressed wages for the talent they have been acquiring over the years. This is an external pressure they cannot control and if they want to keep their talent local then their talent needs to be able to afford to live and pay their taxes.

    1. Arthur Dent

      I know somebody in Silicon Valley who came back from vacation in December and was promptly told his entire division in a fairly high profile company was being closed and everybody terminated, effective immediately. I was surprised because it was in what I view as one of the leading edge areas of the sector for future productivity, not just games. No idea if this is a one-off or the beginning of something.

      The nice thing about upstate NY is the housing market doesn’t really do anything at all. The median household can afford the median house and it is unusual to see home sales worth more than $500k. So few people in the middle class are crushed by house payments.

  4. NotTimothyGeithner

    and if they want to keep their talent local

    They don’t care. Silicon Valley was developed because it was cheaper than San Fran. They will simply move. Ford is a good example. Even with the importance of the Great Lakes, there was still violence towards workers.

    Increased wages will only occur if they are under threat of shutting down operations.

    1. rd

      The most interesting thing to me about the Silicon Valley/SF thing is that the companies and people that are creating the ability to work remotely and selling that dream to companies and people are all stuffed on top of each other in an incredibly expensive setting. they clearly aren’t reading their own sales literature.

  5. Steve

    In SF, one unit of housing stock being created for every 7 jobs created. We have a long ways to go.

    BTW, San Mateo County is not Silicon Valley.

      1. Steve

        I’ve been here since the late 80’s. Silicon Valley starts in Mountain View..anything north of that is the Peninsula. Been that way forever. If for no other reason than there is no Valley on the Peninsula…:)

        A (very) minor point, but words matter.

        1. Michael Fiorillo

          Aren’t you being too literal?

          Silicon Valley is a regional entity, and not confined to the Santa Clara Valley; at this point it’s a figure of speech referring to an entire industry (the way “Detroit” once referred to auto), not a specific location.

          1. Steve

            I suppose you can interpret it that way. However for those who have been around for awhile using that terminology would identify you as something of a rube.

      2. How is it legal

        Yes, it is. Menlo Park is Facebook, plus there’s Varian, LinkedIn and too many to list.

        Huh, Tetrode?

        Varian headquarters are in Palo Alto, which is located in Santa Clara County (East Palo Alto is located in San Mateo County though). Linked In headquarters are in Sunnyvale (oddly, despite it’s size, considered a Metro Area of San Jose), which is also located in Santa Clara County.

        Facebook’s original headquarters, were in Palo Alto, Santa Clara County; its current headquarters are just some minutes walk Northish of the Santa Clara County border.

        Having worked in Silicon Valley from the seventies I agree with Steve that the distinction is an important one, for numerous historic and current reasons, which I don’t have the time, willingness, or energy, to argue. Some of those reasons should be obvious, such as the obscene amounts of unsheltered Homeless people in Santa Clara County, versus San Mateo County.

        The only thing I would be willing to bend on would be that in the earlier years of Silicon Valley history, there were a few defense companies in San Mateo County – e.g. Raychem and Randtronics, in [East] Menlo Park – on the East side of Highway 101, just minutes Northish of the Santa Clara County line, in predominantly black neighborhoods (at the time) such as [East] Menlo Park, and East Palo Alto. Raychem was about a five minute’s walk away from where Facebook is now located.

        1. Sparta Todd

          San Mateo Co is not considered Silicon Valley but most of the people that live there work in the Valley or SF. Plus you have YouTube/Google in San Bruno and there are lots of other startups and companies in San Mateo, Redwood City (Electronic Arts), San Bruno. For the purposes of this article and real estate I would include San Mateo Co in the stats.

    1. Rajesh K

      You seem to be missing the point. Jobs are still being created and yet people are selling and they are lowering their price. What do you think will happen when the inevitable recession arrives and people get fired left and right?

      1. Steve

        There seems to be an underlying assumption in the article that the housing market is, at a minimum, coming down. I don’t think it is. Part of the problem is that you can’t one months data and aggregate it across three huge counties and try to draw conclusions. Lets see if the next few months show the same trend, and be little more specific about cities looked at. For example Daly City is not a great representative of Silicon Valley.

        1. Rajesh K

          Ah I see, because you are viewing this article in that context. Actually the source of this article wolfstreet.com, has been documenting sales and price decline since last summer, https://wolfstreet.com/2018/12/28/us-housing-market-to-get-uglier-in-near-future/. So no, it’s not based on one month.

          And Wolf, the owner of the website lives in San Francisco and he tabulates the data every couple of months or so. You said “you’ve been here since the 80s”, then you’ll know that housing did go down in 2008. Yeah it rebounded but that does not mean that prices will always defy gravity forever. Also the phenomenon of crazy rising prices didn’t even happen during the dot com boom. A lot of people have moved here since then but that does not mean people can’t move again.

          I rent in the Bay Area, and rental prices have also come down. Newer condos are giving away one or two months free to entice renters.

          1. Steve

            Thanks, I will be sure to look out for more updates on the housing market.

            A few other observations – on the Dotcom crash, while Bay Area wide, had nowhere near the same impact on San Francisco, either in job creation, or destruction. Since then SF has Salesforce, Twitter, Square, et al locate their headquarters there.

            And I come back to my original point, when you are creating one housing unit for every seven jobs created that will help mitigate downward pressure on prices.

            We’ll see who is right in a few quarters….:) This article is somewhat dated but you might find it interesting.


            1. Rajesh K

              No offense, but you quote that number as if it’s magic. It’s not a question of how many jobs are created. The question is can the job afford the house? I can also easily quote this: https://www.theguardian.com/technology/2017/feb/27/silicon-aa-cost-of-living-crisis-has-americas-highest-paid-feeling-poor. It’s also from 2017.

              Many 100K to 200K earning people can’t afford houses at this point. Just because jobs are being created (even seemingly high paying ones) does not mean there’s a line of people buying houses. The math has also changed. Interest rates have risen, and based on past cycles that also has some effect on affordability.

              No one is arguing about a housing price crash at this point. There is NO crash. But the fact that prices are trending down BEFORE a recession ……

              1. Steve

                Well…the title of this article is…”Housing Bubble Trouble in Silicon Valley and San Francisco”….

  6. Ignacio

    So, the really smart guys in S.V. ahave always been RE agents that manage to squezze techies accounts.

  7. Ignacio

    So, the really smart guys in S.V. have always been RE agents that manage to squezze techies accounts.

  8. ambrit

    Any data reflecting the slow down in overseas sourced and all cash sales? I wonder how much of these ‘reversals’ is due to the restriction of foreign buyers. If the housing slowdown was also seen in Vancouver, Toronto, etc. then I would look hard at the Chinese money flows.
    Elsewhere in America, the “good” news of housing deflation has not reached the “street” level yet. Older residential housing stock around here is still stuck in “just out of reach” status for the average working and lower middle class family.
    What really ‘bites’ at the lower echelons of society now are the unreasonably inflated rents being asked, and not, as of yet, being adjusted down to match the suppressed wages of the median cohort of society. Remember that the ‘median’ or middle of the pack part of the population is usually the largest part. When “the middle cannot hold,” all h— follows soon after.

  9. Synoia

    Home buying in CA become uncertain after Nov 15 each year. December is atypical for sales, because few want to shop for a home in December.

    January is a peak month, because CA is not the frozen north. Lets see those numbers before judging. All you hear about buying home is generally not applicable to CA, because of the Mediterranean climate. Much convention wisdom centers around the US NE, where few want to shop for a home before the end of the mud season.

  10. Bob Simmons

    There was a bubble in multi-family homes this cycle and it has ended. Whirlpool is cutting production and freezing hiring plans. That is good enough for me. I have seen that before. This means the US is in a overcapacity driven cycle peak like how all expansions end.

  11. Anthony G Stegman

    Declining real estate prices should be seen as a good thing. Why all the hand wringing? Housing should be seen as an expense, not as an investment. Therefore, lower cost housing should be seen as a positive development, just as lower cost gasoline is seen as a positive development for most energy users.

    1. Scramjett

      I know how you feel. They’ve been migrating to Sac and sending housing prices through the roof here. I’d love to move closer to work, but that’s where all of the expensive homes are. Your choices are: 1) Break the bank to afford a shack close to work or transit corridor (and SacRT’s reliability is laughable); or, 2) find something affordable in a far flung area and suffer a crushing commute with no real transit options. It’s frustrating.

  12. Other JL

    Funny, I just saw this in my feed: https://www.mercurynews.com/2019/01/08/1-6-million-for-a-house-with-no-kitchen-only-in-the-bay-area/amp/

    The article notes that it may be priced a bit optimistically. Six months ago, I don’t think I ever saw a place that was priced too high; everything was stratospheric.

    Been seeing signs of this for a while now. A few months ago, started reading articles about “buyer fatigue.” Then, sellers started actually pricing to market instead of assuming everything would go above asking. Also buyers were getting some concessions. I’m not sure of the causes; probably tax changes and interest rates play a part. Maybe also business cycle? While I do want to see prices come down (maybe I’ll be able to buy myself then), I’m concerned it could get ugly.

  13. Norm

    One of the issues that’s inadequately addressed in discussions of housing cost is the runaway costs of construction. In Chicago and Northwest Indiana where I live, existing housing is often a bargain, even at nosebleed prices, when it’s compared to the costs of building new or even of doing extensive rehab on an existing property. One long time small scale home builder/remodeler I know has told me that once he puts together an estimate for a prospective client, he’s embarrassed by the prices he has to submit to the customer.

    I’ve done a fair bit of rehabilitation on older buildings and the experience is one of being in a constant state of sticker shock.

    1. Scramjett

      Interesting. Sort of throws a monkey wrench into HGTV’s “the Property Brothers” and their mantra of “can’t afford an area? But a fixer upper and renovate it for less!”

  14. ewmayer

    “And that the underlying dynamics of the housing market have changed direction is – this time – not a result of the tech bust. That hasn’t happened yet. Is just the housing market turning on its own.”

    In this regard, I think it might be illustrative to add a plot of the Nasdaq on top of that asking-price chart.

  15. Pft

    China joining the Common Reporting Standard along with FINcen requiring owner verification (no more anonymous shell companies) that forces title insurance providers to identify the actual owners behind luxury real estate purchases, are putting a hit on luxury/high end property sales

  16. Scramjett

    Something I think worth noting here. Prop 13 in California reduced property tax rates to roughly 1% (give or take depending on each locale’s mello roos). I suspect that, without the downward pressure applied by property taxes, this is what allowed housing prices to balloon in California. It’s sort of like another symptom of the “cheap money” phenomenon. And, like the cheap money phenomenon, it was only temporary. Now you have neighbors who pay entirely different tax bills because of how expensive housing has gotten. People who bought in the 70’s pay way less, than people who bought in the 90’s, who pay way less than people who bought a few years ago. And elites even have special tricks, loopholes, and other goodies that allow them to pay 70’s tax bills even when buying something new. It’s disgusting.

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