Add tech company layoffs to the list of headwinds facing California's Bay Area housing market.
Rising mortgage rates, recession fears and a volatile stock market have all tamped down home sales and prices in recent months from record-setting pandemic highs.
Now, entering the traditionally slow winter real estate season, growing uncertainty in the region’s leading industry is giving would-be buyers another reason for pause.
“We have clients who have been in and out of looking at buying,” said Silicon Valley realtor Mary Pope-Handy. “One of them works at … Facebook, and they said. ‘I didn’t get laid off, but it doesn’t look like a good time to make a big purchase.'”
Already, there are signs an unstable tech industry may be dragging down home prices. In October, the median cost of existing single-family homes in the Bay Area was down 2% from the same time in 2021, to a still-pricey $1.2 million, according to data released this week from the California Association of Realtors.
That drop was even steeper in tech-heavy San Francisco and San Mateo counties. Prices in San Francisco fell 7% to $1.7 million, while San Mateo home prices tumbled 10% to $1.9 million.
In the region’s other Silicon Valley county, Santa Clara, prices were flat year-over-year at $1.6 million — but were down 4.4% from the month before.
Oscar Wei, deputy chief economist with the Association of Realtors, said the impact of tech layoffs in the Bay Area should be strongest in the coming winter months when homebuying typically slows.
“When you look at sales activity before the end of the year, it’s likely going to be somewhat slower than what we previously thought,” Wei said.
But he expects high mortgage rates to continue being the most significant factor impacting home prices — which despite recent declines are still up in the Bay Area as much as 30% from just before the pandemic.
Last month, mortgage rates soared above 7% for the first time in more than 20 years, more than double the historic-low 3% average rate in 2021.
The rising rates came as a result of the Federal Reserve raising the cost of borrowing to slow inflation. For many buyers, that’s meant that even as home prices have softened, the actual cost of homeownership for most buyers has gotten much more expensive.
This week, there was a bit of relief: The average rate on a 30-year-fixed mortgage fell to 6.6% — the largest drop since 1981 — as inflation begins to cool.
Even so, the typical monthly payment on a $1 million home in the Bay Area is currently $6,422, according to a Realtor.com calculator. This time last year, when rates were at just above 3%, the monthly payment on a home that price would have been $4,708.
(Monthly payment estimates include property taxes and insurance and assume a 20% down payment.)
Now, turmoil in the tech industry is adding a new challenge. Even before Facebook, Twitter and Amazon recently announced massive layoffs, tech companies had been shedding thousands of local jobs as revenue fell and a recession seemed more likely.
While many of those highly qualified workers may find jobs in other industries, the moves “could send a signal to everybody” that the economy and housing market “are vulnerable because it will lead to a broader slowdown,” said Stephen Levy, director of the Palo Alto-based Center for Continuing Study of the California Economy.
Levy noted a widespread freeze in tech hiring could also cool housing costs.
“To the extent that new tech employees were a source of demand for bidding up prices, that is likely to disappear for a while,” he said.
Pope-Handy said potential homebuyers in the tech industry also are feeling the ups and downs of the stock market. As a result, many have been reluctant to cash out their sizable investment portfolios to purchase a home.
But Pope-Handy said another tech trend actually could spur demand for homes: Tech companies, notably Elon Musk’s newly acquired Twitter, are starting to limit employees’ options for remote work, forcing them to move back to the Bay Area for their jobs.
“Whenever we see the market flip down for a bit,” she said, “it doesn’t stay down forever.”
