Home prices are rising even in one of the worst-hit US markets

SAN Francisco and Silicon Valley, tethered to a faltering tech economy, rank among the weakest housing markets in the US. But with inventory tightening fast, prices are taking a surprising upward turn.

Listings in the San Jose area, home to the likes of Apple and Alphabet, plummeted 31 per cent in April compared with the previous year, a decline outpacing all other regions, according to an analysis of 50 large metros from Zillow. Options in San Francisco and Seattle, another pricey tech hub, are shrinking almost as fast.

That’s pushing up prices in an expensive region that was among the hardest hit when mortgage rates started rising last year. The typical home value in April climbed 1.5 per cent in San Jose, 1.3 per cent in San Francisco and 1.2 per cent in Seattle from the prior month, according to non-seasonally adjusted data from Zillow, surpassing the 1 per cent increase for the US.

The gains in West Coast areas grappling with high borrowing costs, tech layoffs and the regional banking crisis underscore the paradox of much of the US housing market: Low inventory is bolstering prices even as many buyers pull back. With the spring sales season underway, house hunters can be surprised to find themselves offering above asking prices to secure deals due to dwindling listings.

Unlike in builder-friendly markets such as Florida or Texas, new houses aren’t filling the inventory gap in West Coast cities with many hurdles to construction. And few homeowners are selling, because doing so often means giving up a cheaper mortgage – an especially unappealing prospect in the Bay Area, where the typical home price is still above US$1 million and loan sizes are massive.

“It is a really striking reversal of fortunes after these markets had such rapidly falling prices,” said Jeff Tucker, senior economist at Zillow. “The Bay Area’s secret weapon against price declines turned out to be people hunkering down and refusing to sell. That put up a firewall against further price declines.”

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Home values are still down 9.9 per cent from a year earlier in the San Francisco area and 9.5 per cent in San Jose, ranking only behind Austin for the biggest annual declines, Zillow data show. Seasonality may be playing a role in the monthly uptick and it’s too early to say whether prices will cool further given the economic uncertainty in the region, Tucker said.

But with many tech workers now sidelined by fear, opportunities have emerged for some people who were previously priced out, said Chris Jurach, a Realtor with Engel & Völkers who works in San Francisco and adjacent Marin County.

Homebuying remains muted, particularly in the newly-built luxury condo towers in downtown San Francisco, where half-empty office buildings were left behind by remote workers now living in less expensive locations, he said.

Demand is somewhat stronger in other areas, especially for single-family homes. Jurach listed a two-bedroom mid-century modern house for sale on April 12 for US$1.295 million. He received plenty of interest, but only one solid offer, which came in 5 per cent above asking. On his advice, his client agreed to take it, he said.

“Buyers seem to be timid and slow to present offers in this environment,” Jurach said. “Yet we’re still seeing continued appreciation.” BLOOMBERG