Santa Clara County was well on its way to a full housing recovery going into 2020. Residential construction was booming and buyer incomes were rising at a much quicker pace than the rest of the state. However, annual home sales volume had remained level-to-down since 2012, decreasing each year since 2018.

The past decade of Santa Clara’s successes has been due to its strong jobs market, particularly in the Silicon Valley area. However, the region’s high cost of living, reflected in steeply rising home prices, is a heavy drag on demand, consistently holding back sales volume.

Then, in 2020, the economic response to the global pandemic alongside the underlying recession caused job losses to ripple across the state. In 2020-2021, historically low interest rates along with constrained inventory and homebuyer fear-of-missing-out (FOMO) pushed home prices into bubble territory. 

At the start of 2022, interest rates have jumped, causing buyer purchasing power to plummet. Along with 2021’s expiration of the foreclosure moratorium and rising number of forbearance exits expected to cause a wave of forced sales in 2022, these factors will put downward pressure on home prices. Of most concern to real estate professionals, today’s rising interest rates herald the next recession, anticipated to arrive in the second half of 2023. Today’s high levels of home equity will prevent the coming pricing decline and rise in foreclosed property from being as severe as what followed the 2008 recession, though an anemic housing market is inevitable.

Look to the recovery from the next recession, to consistently gain momentum here in Santa Clara around 2026, for the next sustainable bump to sales and prices. In the meantime, recession-proofing your practice will ensure the survival of you real estate career during the coming slump.

Updated May 11, 2022. Original copy posted August 2014.

Home sales volume heads down

Chart update 05/11/22

2021 2020 2019
Santa Clara County home sales volume 22,900 16,700 16,300

*first tuesday’s projection is based on monthly sales volume trends, as experienced so far this year, and other local economic indicators.

22,900 home sales closed in Santa Clara County during 2021, a rapid 37% increase from 2020. This significant increase follows years of flat-to-down sales volume in the region. Constrained by tight inventory and high home prices, sales volume remains at just half the Millennium Boom peak. Further, as of Q1 2022, year-to-date (YTD) sales volume is 18% below 2021, indicating another down year for sales volume.

The main reason for Santa Clara’s flat-to-down home sales volume? Home prices in the Santa Clara/San Jose area are inflated well beyond income raises, sending end users further afield where they are able to buy more home for the same amount of money. Held down by strict zoning regulations, inventory is unable to rise to meet homebuyer demand, meaning buyers end up paying more and more each year for the same home. These unhealthy, shuttering price gains are not what local real estate agents want.

Personal incomes have risen at a much slower pace than home prices. Personal incomes rose 7.9% in 2020 in the county. While this is a significant annual increase, it was well below the year-over-year increase in Santa Clara County home prices that year. After years of rising, home prices have hit a peak.

In 2022, the economic fall-out from rising interest rates and the ongoing hangover from the 2020 recession continue to beg caution for the state’s housing market. Expect to see sales volume fall back in 2022-2023 as the region grapples with a return of forced sales, following the rise in forbearance exits, and reduced homebuyer confidence.

Turnover is flat

Chart update 09/08/20

2018 2017 2016
Santa Clara County homeowner turnover rate 6.3% 7.5% 7.9%

Santa Clara County renter turnover rate

23.4% 25.2%
20.4%

It’s no surprise Santa Clara County’s housing turnover rate is stagnant, given the county’s resulting flat home sales volume. With home prices began to falter in 2018, it’s simply not the prudent time to buy. However, the area’s solid jobs recovery has ensured new residents continue to pour in at a rapid rate, and this added stress is shown in the high renter turnover rate. In 2017, one-in-four renters moved in Santa Clara, decreasing in 2018.

Santa Clara’s quick pace of population growth will help churn Santa Clara County’s turnover rate, first as increased renter turnover followed by a rise in homeowner turnover – once residential construction catches up to the demand. The caution in these forward observations is the tech and information bubble developing in the area and whether it will come to the point of bursting and putting end to further job growth in this 2020 recession.

Homeownership feels the pressure of high prices

Chart update 05/11/22

Q1 2022 Q4 2021 Q1 2021
Santa Clara County homeownership 47.3% 46.7% 51.1%

While varying greatly from quarter to quarter, Santa Clara County’s long-term homeownership rate trended downward from 2005 through 2015, when homeownership bottomed at a very low 45%. Since then, the region’s rate of homeownership continues its volatile swings, at 47.3% in Q1 2022.

The rest of the state has experienced a swift decline in homeownership since the 2008 recession, peaking at over 60% in 2006, at 54.2% in Q1 2022. Santa Clara’s long-term rate of homeownership is mostly stable, due both to its successful jobs market and high home prices. Elevated prices keep homeowner turnover from rising to unsustainable levels (as occurred across the state during the Millennium Boom). Likewise, Santa Clara County’s strong jobs market bolsters its homeownership rate, which will be tested in the next couple of years as the state continues to claw its way out of the ongoing recession.

Construction boom trails off

Chart update 01/20/22

2020 2019 2018
Santa Clara County single family residential (SFR) starts 1,900 1,900 1,900

Santa Clara County multi-family starts

4,200 4,600
6,500

After years of steady recovery, construction experienced some setbacks in 2020 in Santa Clara County. Single family residential (SFR) starts remained flat for the third year in a row, while multi-family decreased 9%.

Santa Clara County’s high cost of living makes it more cost-effective to reside in a multi-family dwelling with communal amenities, as opposed to a large suburban SFR. And while multi-family construction has overall increased since the Millennium Boom years, it’s still insufficient to keep up with demand from the region’s ever-growing population.

SFR and multi-family starts will likely hit their peak following Gen Y’s and Gen Z’s delayed entrance into the housing market in 2024-2025. This will be helped along by new legislation intended to combat the growing housing shortage by fostering more construction.

Santa Clara jobs are not shielded from the recession

Chart update 05/11/22

Mar 2022 Mar 2021 Annual change
Santa Clara County jobs 1,139,300 1,069,400 +6.5%

Santa Clara County passed the milestone of its pre-recession employment peak in early 2013. Accounting for a population gain of just over 100,000 individuals in Santa Clara County since the 2008 recession, it finally reached a full jobs recovery for its population in Q1 2015.

In contrast, the state of California only just reached pre-recession employment numbers at the end of 2014 and didn’t reach a post-population-gain recovery until 2019.

Why did Santa Clara’s job market recovered more quickly than the rest of the state, and will it do the same following the current recession? Roughly one-quarter of the jobs added since the recovery from the 2008 recession have been in the Professional-Business Services industry. This includes all of those tech industry jobs. The bulk of other new jobs can be found in industries that support the tech industry.

However, what was gained can be lost. The economic response to COVID-19 caused record job losses across the state, and the San Jose metro area is no exception. As of March 2022, Santa Clara County is still missing 26,800 jobs from its December 2019 peak. Expect to see these job losses continue to impact real estate in 2022 and the years ahead, especially with 2021’s expirations of the foreclosure and eviction moratoriums, and the growing number of homeowners exiting forbearance plans.

Employment by industry

Chart update 05/11/22

Mar 2022 Mar 2021 Annual change

Construction

53,000 49,500
+7.0%

Real Estate Rentals & Leasing

14,500 14,800
-2.0%

While the 2020 recession caused job losses across all industries, jobs are gradually returning. In the construction industry, jobs are nearly level with the pre-recession peak. Expect the construction industry to rise further in the coming years as construction starts rise in response to ever-present demand for local housing, spurred on by California legislative efforts to induce more residential construction.

On the other hand, the number of real estate professionals continues to trend down in 2022. Expect this decrease to continue in 2022-2024, reflective of rising interest rates and decreasing sales volume.

Related article:

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Income rising quickly

Chart update 05/11/22

2020 2019 Annual change
Santa Clara County per capita income $123,700 $114,600 +7.9%
California per capita income $70,700 $65,300 +8.3%

Santa Clara County personal incomes are well above the statewide average. From 2019 to 2020, incomes increased 7.9% in the region, slightly less than the state average but still a significant increase.

But these income increases are not all that they seem. The high cost of housing in Santa Clara has pushed out many low- and moderate-income residents. So, while average incomes have increased in the region, the rapid pace of increase is at least partly due to many residents being forced to move to less costly areas.

Despite these relatively large income boosts, incomes actually need to increase much faster to meet the area’s rate of home price rise if home prices and rents are to be maintained. Home prices will need to fall in line with homebuyer incomes, especially as rising mortgage interest rates reduce buyer purchasing power in 2022. Along with global economic uncertainty and still-high home prices, homebuyer enthusiasm is beginning to be tempered by caution. Therefore, expect home prices to trend down in the second half of 2022 as we head into the next economic recession, forecasted to arrive by the end of 2023, bottoming in 2024.

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