December is days away, and before long we'll be tacking up our 2021 calendars. That…
Key highlights from this report:
- San Jose’s housing market has had its ups and downs in recent years.
- One forecast predicted that home prices will level off, going into 2021.
- But COVID-related migration trends could give this market a boost.
This is article part of an ongoing series that examines housing market forecasts for major cities across California. Today, we’ll be zeroing in on the San Jose real estate market.
Home Prices in San Jose: Up, Down and Up Again?
Let’s start by looking at home price trends over the past few years. The San Jose, California housing market has been something of a rollercoaster over the past decade. You can see this in the chart below, provided by Zillow.
As you can see, home prices in San Jose began a steady upward climb in 2012 that lasted until the summer of 2018. Following that trend, house values took a downward turn due to affordability issues and other factors. In late 2019, prices turned north again as buyer demand continued to exceed supply.
Looking forward, the research team at Zillow offered a somewhat conservative forecast for the San Jose housing market that stretches into 2021. In June, the company wrote: “San Jose home values have gone up 2.6% over the past year and Zillow predicts they will fall -0.7% within the next year.”
Granted, that’s just one forecast, and it’s the equivalent of an educated guess. But it also mirrors predictions offered by other sources, and for most other cities across the U.S. The general consensus is that home prices in many parts of the country will either slow down or dip slightly through the second half of 2020 and into 2021.
That’s to be expected, really, when you look at the broader economic struggles the country is facing (and the ongoing COVID-19 situation). Rising unemployment and economic anxieties have rattled the real estate market in San Jose and other parts of California — along with the rest of the country.
But the San Jose housing market also has a lingering supply shortage, in terms of the number of homes for sale. There just aren’t enough homes listed for sale in the area to meet the demand from buyers. That has been the case for quite some time now, and it’s a common factor among other Bay Area real estate markets as well.
San Francisco ‘Flight’ Could Steer Buyers Toward San Jose
Last week, we shared some predictions and polls that suggested more and more urban residents are considering a move to less crowded suburban and rural areas. It’s called “urban flight,” and we’ll probably be hearing that phrase a lot more over the coming months.
The gist of that article was that more and more home buyers in California and nationwide are opting for suburban areas, over the more crowded cities. The coronavirus (COVID-19) pandemic is the driving factor.
The San Jose housing market forecast above predicted a slight dip in prices over the next year or so. But it probably doesn’t factor the urban flight situation into account. That could be one of the driving factors for the San Jose real estate market, during the second half of 2020 and into 2021.
In fact, we’re seeing some early signs of this trend already. According to a recent study by the data analytics firm Moody’s, San Jose could see an increase in housing demand as people leave the much more crowded San Francisco real estate market.
The Mercury News recently covered the Moody’s report, writing:
“In the wake of a pandemic sweeping through many of the country’s most densely packed areas, analysts expect an exodus from cities in favor of car-friendly suburban areas. San Jose is among the cities best-positioned to reap the benefits of a post-coronavirus world, according to a new study from the data analytics firm Moody’s.”
Social Distancing Easier in Suburban Areas
With the continued rise of remote working, well-educated works in tech and other industries now have more flexibility as to where they live. And many are considering less crowded areas over the more dense urban population centers.
That’s logical, when you consider the current trend toward social distancing. It’s hard to distance yourself in a crowded city center. Consider the difference:
- In San Francisco, there are more than 17,000 residents per square mile.
- In San Jose, there are roughly 5,300 residents per square mile.
We’re talking about the difference between sprawling suburbs and a packed-in city. And these days, many home buyers seem to prefer the former over the latter.
So perhaps we’ll see some revised real estate predictions for San Jose in the coming months, if demand does rise as expected. Time will tell.
The Challenge of Housing Market Forecasts
Housing market forecasts are an inexact science in the the best of times. And during times of economic turmoil and uncertainty, they’re even more difficult to produce.
The San Jose housing and home-price predictions above are based on current trends in the market. And as we know, real estate trends can change significantly in a short period of time, especially in times like these.
Because of this, it’s a good idea to think about real estate and home buying from a long-term perspective. Yes, home prices in this housing market could soften over the coming months. But as the public-health crisis eases, the market will eventually rebound.
It’s also helpful to focus on the fundamentals of supply and demand, because that’s what will drive the market once the turmoil subsides. And in the San Jose area, those fundamentals can be summed up in a single sentence:
In 2021, the number of buyers in this market will likely exceed the number of homes available, and that would put upward pressure on prices.
Disclaimer: This article includes housing market forecasts for San Jose, California through 2020 and into 2021. Those predictions were issued by third-party sources not associated with our company. Real estate and economic forecasts are the equivalent of an educated guess.