The explosive growth of artificial intelligence 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. According to real estate agency Compass, the average home is worth about $1.8 million.
Local analysts and agents drive the success of tech companies, especially in the AI industry.
“Stock markets have seen a lot of appreciation, especially in the Nasdaq (^IXIC), [which] “Especially important to the Bay Area because we have so much high-tech,” said Patrick Carlisle, chief market analyst for the San Francisco Bay Area at Compass. Money adds up.”
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 much tied to the tech industry,” Ken Rosen, a retired professor at Berkeley's Haas School of Business, told Yahoo Finance.
The dotcom bubble started around 1995 and peaked in 2000. Investments in the World Wide Web flooded Silicon Valley. The Nasdaq index reached 5,000 for the first time.
San Francisco median home prices rose by double digits from 1997 to 2000, reaching a nearly 30% annual gain and climbing above the $500,000 mark for the first time in 2000, Compass data shows.
“I think the San Francisco Bay Area is particularly susceptible to booms and busts because of how high-tech has become a dominant industry in the last 30 to 40 years,” Carlisle said. “Because of the dot-com boom, which was very local … [home price appreciation] San Francisco and Silicon Valley were very, very dramatic. When he crashed, we saw a decline. [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 — rose nearly 260 percent between 2010 and 2020.
Median home prices rose by double digits in seven out of 10 years during that decade, exceeding $1.6 million.
Boom in the luxury market
So far this year, local agents have seen an increase in demand for luxury homes.
Dave Walsh, vice president of the Compass office in Santa Clara County, said it's common for “thirty to forty groups to come to an open house.” “So by the end of the week, most of our new homes that just came on the market at that high end are going to be under contract.”
The median Santa Clara County home stays on the market for nine days, about a month shorter than the national median of 35 days. According to Redfin data, nearly 80% of home buyers pay more than the asking price. According to Compass' May 2024 report, the number of homes sold for more than $5 million in Santa Clara County increased to 34 in April from 19 a year ago.
Even luxury homes that had been sitting on the market for months began to fall apart earlier this year, said Sia Glafkides, a veteran Bay Area Compass agent.
“People are in the tech business,” Glafkides said, “and they have a lot of stocks they can cash out.”
Silicon Valley employees are often given stock as part of their compensation. As AI and tech companies have taken off in recent months, equity wealth has trickled down to workers who own parts of the firms.
“Many of these people have become millionaires or billionaires, literally over the course of a year, and that affects how the market dynamics work,” Carlisle said. .
Nvidia ( NVDA ), the “poster child for the AI boom” headquartered in Santa Clara, sees its market capitalization grow 239% in 2023 and $1 trillion by 2024. Advanced Micro Devices, Inc. (AMD), another Santa Clara company investing in cutting-edge AI technology, saw double-digit growth this year.
“This is happening with other AI companies all over the Bay Area,” Carlisle said. He added that Nvidia and its ecosystem have created enormous 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 some of the world's biggest tech companies, such as Meta, Google, and HP.
Homes available for sale are rare. High-end shoppers have “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 who are lucky enough to have the right stocks right now are taking advantage,” Walsh said. “They're changing. [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 housing boom to AI.
“The number of jobs in AI is not huge yet,” Enrico Moretti, a professor at the University of California, Berkeley, told Yahoo Finance, noting that less than 1 percent of jobs in the Bay Area are currently in AI. “It may have an effect, but I don't think it's a huge effect.”
But that could change as the industry continues to expand. As AI becomes increasingly intertwined with everyday life, employment opportunities can grow significantly.
“Then we can expect an impact not only on luxury but also on averages. [housing market]” Morty said.
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax Certified Public Accountant (CPA).
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