Silicon Valley luxury home market heats up amid AI boom

Artificial intelligence companies' explosive growth 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 — spiked in April. The median home price is nearly $1.8 million, according to real estate agency Compass.

Local analysts and agents attribute the bull run to the success of tech companies, most notably in the AI industry.

"There's been a huge increase in value in stock markets, especially in the Nasdaq (^IXIC), [which] is especially important for the Bay Area because we have so much high tech," said Patrick Carlisle, chief market analyst for the San Francisco Bay Area at Compass. "When households see their household wealth increasing by leaps and bounds so quickly, it increases their confidence, and of course, it just increases the amount of money they have to purchase homes."

San Francisco is no stranger to tech-led market tailwinds
Silicon Valley's real estate market has always risen and fallen with the technology sector.

"[Home prices] are very highly correlated with the tech industry," Ken Rosen, a retired professor at the Berkeley Haas School of Business, told Yahoo Finance.

The dot-com bubble started around 1995 and peaked in 2000. Investment in the World Wide Web flooded Silicon Valley. The Nasdaq index reached 5,000 for the first time.

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

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

The rise of social media after the financial crisis brought another wave of massive wealth to the Bay Area. The Nasdaq — where Microsoft, Google, Meta, and Apple are listed — increased around 260% between 2010 and 2020.

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

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

"Thirty to 40 groups coming through on an open house day" is typical, said Dave Walsh, vice president of the Compass office in Santa Clara County. "So by the end of the week, most of our new homes that have just come on the market at that higher end are going to be under contract."

The median Santa Clara County home stays on the market for nine days, almost a month shorter than the national median of 35 days. According to Redfin data, nearly 80% of homebuyers pay above the asking price. The number of homes sold over $5 million in Santa Clara County increased in April to 34 from 19 a year ago, according to Compass's May 2024 report.

Sia Glafkides, a veteran Bay Area Compass agent, said even luxury homes that had sat on the market for several months started getting snapped up at the beginning of this year.

"People are in the tech business," Glafkides said, "and they have lots of stocks they can cash out."

Silicon Valley employees are often granted stocks as a part of their compensation. As AI and tech companies have taken off in recent months, equity wealth has trickled down to workers who own portions of the firms.

"Many of them have become millionaires or billionaires, literally over the course of a year, and that affects how the market dynamic works," Carlisle said.

Nvidia (NVDA), the "poster child for the AI boom" headquartered in Santa Clara, saw its market capitalization skyrocket 239% in 2023 and is up $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.

“That is happening with other AI companies all over the Bay Area," Carlisle said. He added that Nvidia and its ecosystem have created immense wealth 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 tech companies, such as Meta, Google, and HP.

Available homes for sale are rare; high-end buyers have "maybe 25 to 50 choices at most," Walsh said.

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

"Those people that are fortunate enough to have the right stock right now are taking advantage of it," Walsh said. "They're converting [wealth] from stock 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 housing boom to AI.

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

But that could change as the industry continues to expand. As AI becomes increasingly intertwined with daily life, employment opportunities could grow significantly.

"Then we might expect an effect on not just the luxury but also the average [housing market]," Moretti said.