Home prices in the San Jose metropolitan area are expected to decline sharply in 2024, faster than any other largest metropolitan area in the country.
At least that’s according to real estate brokerage site Zillow, which estimates that the average home price in the San Jose metro will fall from $1.46 million in November 2023 to $1.37 million in November 2024. However, real estate agents pointed out that home prices in the area are declining. The upward trend is expected to continue next year.
The opposite forecast hinges on whether buyers continue to compete for homes in the San Jose metropolitan area, which includes Palo Alto and San Benito counties. Zillow economists said buyers will look elsewhere for more affordable housing. But Bay Area real estate agents argued that lower rates would only lead to more buyers haggling for the limited inventory of homes.
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Typical home prices in the San Jose area continued to rise in November, rising 5% from $1.39 million in August, according to Zillow data. Home prices in the metro area were $1.46 million in November, less than the $1.52 million peak in May 2022, before rising mortgage rates forced many buyers out of the market. But this reflects a faster pace of increase than in the San Francisco and Sacramento metropolitan areas, where values increased by about 1% from August to November 2023.
Nicole Bashaw, senior economist at Zillow, said those increases will soon reverse. He explained that in expensive markets like San Jose, mortgage rates remain too high for many prospective homebuyers, slowing the market and driving down prices.
“There is no sign that interest rates will come down significantly. 6.5% is still a very expensive mortgage for a $1 million home,” Bashaw said in an email.
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But Sandy Jamison, a San Jose-based real estate agent with the Jamison Team, said there are still plenty of buyers in the area. She explained that while some people are looking for homes elsewhere, many want to remain in the area. In addition, lower interest rates could further intensify competition among buyers, causing prices to rise.
“There’s always been a lot of demand in the Bay Area and San Jose,” Jamison said. “With such a large population, there are enough buyers to absorb the limited inventory.”
Zillow occasionally adjusts its forecasts. The company previously predicted that home prices would rise in the San Jose and San Francisco metropolitan areas from summer 2023 to summer 2024, although not as much as in other areas.
Zillow currently projects San Jose’s year-over-year decline in home prices will be greater (6.1%) than any of the other 100 metro areas for which the company has data. The San Francisco metropolitan area is expected to see the third-largest decline over the same period, at 4.8%.
Home values will also fall as mortgage rates encourage more homeowners to sell their properties, said Bashaw, the Zillow economist. This would increase the supply of housing and lower prices.
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But EQ1 Real Estate broker Nikki Edwards said she doesn’t expect that to happen anytime soon, as many homeowners are locked into low interest rates that they don’t want to give up. Some people may be willing to sell their homes if interest rates drop to about 5%, but that won’t happen until late 2024 or early 2025, she added.
Demand for housing remains particularly high in Silicon Valley due to the growing need for technology workers to return to the office, Edwards said. And many of those workers earn enough to pay the area’s high prices, she explained.
“This is an inventory issue, not a demand issue,” Edwards said.