The Bay Area Market Is an Anomaly: Where SF Is Down 5.4% YTD, San Jose Soars 10%—Why?

[Kevin G.]

Hello everyone,

I have been actively researching the real estate market in the Bay Area, which I feel isn't talked about much in this sub. I know that due to its extremely high barrier of entry and overall VHCOL (Very High Cost of Living), it's a different beast altogether. But when looking at the trends, I actually see Silicon Valley specifically not slowing down anytime soon, while other parts of the Bay Area are actually suffering.

Let's start with the bad...

San Francisco (SF) is experiencing price drops of around 5.4% Year-to-Date (YTD) and is expected to drop even more next year. Businesses are leaving left and right, with some of the most popular flagship stores closing down. Crime rates in SF are at an all-time high, which can't be ignored. Tech workers with high incomes have options, and if it means leaving the city for a safer community and better quality of life, they are going to choose that, and we are seeing it in the trends. More homes that have recently been remodeled are popping up for sale in SF, indicating that some home buyers have sought to add value to their property and try to bring back the home values they once had in 2020-2021.

Oakland is also facing challenges. Rents are dropping rapidly in the city, largely due to the high level of crime. While Oakland used to be a cheaper option for people who wanted to live closer to SF, that is no longer the case. The crime and overall lack of safety in the city are driving people away, and I don't blame them.

On the other hand...

San Jose and the surrounding area have seen an increase in home values of 10% YTD. This is very interesting when compared to SF experiencing the opposite. I attribute this to the safer area, as well as the rise in tech jobs thanks to the AI boom.

How it pertains to investors...

While the Bay Area market can be scary due to the high barrier of entry and overall crime in certain areas, it would be smart to dive deeper and take a look at the future growth. My prediction is that the increase in AI jobs will bring prices soaring again, including rents. We are just in the infancy stages of AI and have yet to fully explore the potential of this technology.

Navigating the Bay Area market can be quite challenging. Even for those who feel confident in navigating different markets, the high prices and interest rates in this area have proven to be difficult.

Would love to hear your thoughts and theories on why the Bay Area's market behaves so divergently.