Silicon Valley’s luxury home market heats up amid AI boom

The explosive growth of AI companies is boosting San Francisco’s luxury real estate market.

Sales of homes priced at $5 million or more in Santa Clara County — home to Silicon Valley — rose in April. The median home price is nearly $1.8 million, according to real estate agency Compass.

Domestic analysts and brokers attribute the bull run to the success of technology companies, particularly in the AI ​​industry.

“There has been a huge increase in value in the stock markets, particularly the Nasdaq (^IXIC), [which] it’s especially important for the Bay Area because we have a lot of high technology,” said Patrick Carlisle, principal market analyst for the San Francisco Bay Area at Compass. “When families see their family wealth grow by leaps and bounds big so quickly, it increases confidence, and of course, it just increases the amount of money they have to buy houses.”

San Francisco is no stranger to technology-led market winds

The real estate market in Silicon Valley has always risen and fallen with the technology sector.

“[Home prices] are very tied to the technology industry,” Ken Rosen, a professor emeritus at the 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 Silicon Valley. The Nasdaq hit 5,000 for the first time.

Compass data shows that median home prices in San Francisco rose by double digits from 1997 to 2000, posting nearly a 30% annual gain and climbing above the $500,000 mark for the first time in 2000.

“I think the San Francisco Bay Area in particular is more susceptible to booms and busts because of how high tech has become such a dominant industry over the last 30-40 years,” Carlisle said. “Because of the dot-com boom, which was very localized… [home price appreciation] in San Francisco and Silicon Valley it was very, very dramatic. When it crashed, we saw a drop in the [home] prices.”

The rise of social media after the financial crisis brought another wave of massive wealth to the Bay Area. The Nasdaq – which lists Microsoft, Google, Meta and Apple – rose about 260% between 2010 and 2020.

Median home prices rose by double digits in seven of the 10 years during that decade, exceeding $1.6 million.

Booming luxury market

So far this year, local agents have seen a growing demand for luxury homes.

“Thirty to 40 groups coming to an open house” is typical, said Dave Walsh, vice president of Compass’ Santa Clara County office. “So by the end of the week, most of our new homes that have just come on the market at that higher level will be under contract.”

The story continues

The average Santa Clara County home sits on the market for nine days, almost a month shorter than the national average of 35 days. According to Redfin data, nearly 80% of home buyers pay above asking price. The number of homes sold for more than $5 million in Santa Clara County rose to 34 from 19 a year ago, according to the May 2024 Compass report.

Sia Glafkides, a veteran Bay Area Compass agent, said even luxury homes that had been on the market for months began to fall apart earlier this year.

“People are in the technology business,” Glafkides said, “and they have a lot of stocks they can cash in on.”

Silicon Valley employees are often given stock as part of their compensation. As artificial intelligence and technology companies have risen in recent months, the stock’s fortunes have fallen among workers who own parts of the firms.

“A lot of them have become millionaires or billionaires, literally within a year, and that affects how the market dynamics work,” Carlisle said.

Nvidia (NVDA), the Santa Clara-based “poster child for the AI ​​boom,” saw its market capitalization skyrocket 239% in 2023 and has grown $1 trillion so far in 2024. Advanced Micro Devices , Inc. (AMD), another Santa Clara company investing in advanced AI technology, saw double-digit growth this year.

“This is happening with other AI companies throughout the Bay Area,” Carlisle said, adding that Nvidia and its ecosystem have created a huge fortune in Silicon Valley.

The most expensive homes in Santa Clara are concentrated in Palo Alto, Los Altos Hills, Los Altos and Saratoga – suburbs surrounded by the world’s largest technology companies, such as Meta, Google and HP.

Homes available for sale are rare; High-end buyers have “maybe 25 to 50 choices at most,” Walsh said.

Median home prices in these cities range from $3.5 million to nearly $5.6 million, according to Compass.

“Those people who are lucky enough to have the right stock are now taking advantage of it,” Walsh said. “They are converting [wealth] from stocks to real estate and securing that dream home they’ve always wanted.”

However, one expert says it’s too early to attribute the Bay Area’s housing boom to AI.

“The number of jobs in AI is not very large yet,” Enrico Moretti, a professor at the University of California, Berkeley, told Yahoo Finance, noting that less than 1% of employment in the Bay Area is currently in AI. “It might have an effect, but I don’t think it’s a big one.”

But that could change as the industry continues to expand. As AI becomes more and more intertwined with everyday life, employment opportunities may increase significantly.

“Then we can expect an effect not only on luxury, but also on average [housing market]said Moretti.

Rebecca Chen is a reporter for Yahoo Finance and previously worked as a certified public accountant (CPA).

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