White Paper Silicon Valley Housing and Economic Outlook Santa Clara County, San Mateo County Prepared by John Burns Real Estate Consulting for Pacific Union 11.5.2014
Santa Clara County The booming tech market continues to drive home prices and rents beyond the reach of most employees. Ongoing expansions by major local employers should continue to create more affluence for years to come. The Economy Vibrant Tech Boom: Santa Clara County is the focal point of the nation s tech sector The county added a remarkable 40,000 net new jobs last year and should add nearly 35,000 more this year, pushing employment to nearly 1 million. We project job growth to ease in the coming years, but still remain strong for the next two years at nearly 30,000 annually before slowing. Tech Sets the Stage: For the San Jose MSA as a whole (which includes Santa Clara County and far smaller San Benito County), manufacturing, education/health, and trade/utilities play an important role, but the high-paying professional and business services is paramount at about 20 percent of total jobs. The tech sector is the engine that drives Silicon Valley, and tech jobs are distributed throughout a variety of sectors. Highly Employed Population: Only 5.5 percent of the labor pool cannot find a suitable job. Affluence: With a median income of $106,100 per year, Santa Clara County is one of the most affluent areas in the nation. And also unlike the nation as a whole, income growth has been robust 8.5 percent in 2013 and projected to come in at 5.6 percent in 2014 with solid growth forecast for the next few years. Jobs and Median Income Trends and Projections - Santa Clara County 2009 2010 2011 2012 2013 2014P 2015P 2016P 2017P 2018P Jobs Total 855,600 853,100 873,500 908,200 948,200 982,700 1,012,300 1,039,900 1,053,500 1,063,000 Change -5,600-2,500 20,400 34,700 40,000 34,500 29,600 27,600 13,600 9,500 Change Rate -6.1% -0.3% 2.4% 4.0% 4.4% 3.6% 3.0% 2.7% 1.3% 0.9% Median Income $85,200 $84,200 $86,900 $92,600 $100,500 $106,100 $111,200 $116,500 $121,200 $125,400 Change Rate -3.1% -1.2% 3.2% 6.6% 8.5% 5.6% 4.8% 4.8% 4.0% 3.5% Demographics Steady Growth, Potentially Slowing: Santa Clara County is nearing 1.9 million residents in over 625,000 households, making it one of the largest population centers on the West Coast. Population growth has been fairly strong recently at 1.4 percent in 2012 and 2013, though it appears to be slowing. This is at least in part due to constrained housing supply, but note that population growth could outpace the projections seen in the table below, particularly as more rental product comes onto the market. Pushed Out?: Growth projections translate into about 10,000 to 15,000 new residents annually in Santa Clara County, adding about 6,000 to 7,000 housing units to existing stock each year. High prices and lack of new supply make Santa Clara County a major exporter of housing demand into more outlying parts of the Bay Area. Population and Households Trends and Projections - Santa Clara County Population Total 1,765,100 1,786,500 1,811,300 1,836,000 1,862,400 1,873,000 1,871,900 1,881,700 1,893,600 1,907,400 1,922,400 Change 24,200 21,400 24,800 24,700 26,300 6,300 9,600 9,700 11,900 13,800 15,000 Change Rate 1.4% 1.2% 1.4% 1.4% 1.4% 0.3% 0.5% 0.5% 0.6% 0.7% 0.8% Household Total 597,300 605,300 610,400 616,600 620,300 626,100 624,900 631,100 638,100 645,100 652,000 Change 8,700 8,100 5,100 6,200 3,700 5,100 4,600 6,200 7,000 7,000 6,900 Change Rate 1.5% 1.3% 0.8% 1.0% 0.6% 0.8% 0.7% 1.0% 1.1% 1.1% 1.1%
The Housing Market Slowing Home Price Appreciation: Our Burns Home Value Index (BHVI) estimates price appreciation for the entire resale market. Currently, the BHVI for the San Jose MSA shows prices have risen 7.5 percent over the last year. Greater San Jose experienced growth rates of 17.0 percent and 13.5 percent in 2012-2013, so the projected BHVI increases ranging from 1.0 percent to 4.6 percent from 2015-2018 signal a normalizing market. Consistent Resales Volumes: Over the past 12 months, Santa Clara County has supported over 18,000 resales. We forecast solid increase over the next two years of about 7.0 to 8.0 percent or more, followed by modest dips the following two years. Though these 18,000-20,000 annual sales are roughly in line with the long-term norm, this volume level is just more than half the market peak experienced in 2004. Investors Fewer and Shrinking: Investor activity was never as strong in the San Jose MSA as it was in many other regional markets given the strength of conventional demand. Still, investors represented 16 percent of the market in the second quarter, down from a Q1 2013 peak of 21 percent. Affordability: Though low mortgage rates help keep affordability at a historically normal level in the San Jose MSA, high prices mean homeownership still requires a fairly high share of incomes in spite of the area s affluence. The median-income household would need to pay 42 percent of their income to buy the median-priced resale home and 44 percent for the median-priced new home (similar because new home densities are almost always higher than the existing housing stock). Expensive and Uncommon New Homes: Limited new supply and the tremendous appeal of Santa Clara County means new home prices are consistently high. Over the past year and a half, the median new home price has centered at about $765,000. This compares to a full year 2013 median new home price of $721,190. Burns Home Value Index Trends and Projections - San Jose MSA Burns Home Value Index 119.01 117.03 115.18 134.79 153.03 162.34 163.74 171.27 175.90 179.42 181.21 Change Rate -1.8% -1.7% -1.6% 17.0% 13.5% 7.5% 7.0% 4.6% 2.7% 2.0% 1.0% Affordability Index 3.7 4.1 3.0 2.6 4.3 4.9 4.9 5.3 5.6 5.9 6.0 Source: John Burns Real Estate Consulting Note: The Burns Affordability Index is scaled from 1 to 10, with 5 set to the long-term norm for a given market, 0 indicating excellent affordability and 10 indicating excellent affordability poor affordability compared to that market s norm. Market Color Apple Campus 2 Breaks Ground: Apple Inc. has started construction in Cupertino on its sprawling new campus. When completed, the new campus is expected to have over 3 million square feet of space housing at least 12,000 employees. Apple will keep its existing campus, indicating they will continue to add new jobs in Cupertino. Venture Capital Reaching Dot-Com Levels: Venture-capital investment in Silicon Valley is growing exponentially this year. In the first six months of 2014, venture-capital investment was already at the full year 2013 total value. If the trend continues, investment would be back to around $20-$24 billion for the full year, above the 1999 level, but still below 2000 when the tech bubble burst. Bonuses and stock options at tech companies in the region are a major pillar of the housing market.
San Mateo County Located between two of the hottest counties in the U.S. San Francisco and Santa Clara San Mateo County offers great housing options to those who want a better value per square foot and are willing to commute. The Economy Great Job Growth: San Mateo County is part Silicon Valley and part suburban extension of San Francisco. It is a major employment node in its own right, with 15,000 net new jobs added in 2013 and about 6,000 to 8,000 new jobs projected annually through 2016. High Pay Growth: For the San Francisco MSA as a whole (San Mateo, San Francisco, and Marin Counties), the higher-paying sectors finance, information, and professional and business services are critical and have experienced tremendous growth over the last two-plus years. These sectors added over 44,000 jobs MSA-wide from 2011 to 2013. Highly Employed Population: Only 4.5 percent of the labor pool cannot find a suitable job. Affluence: San Mateo County is highly affluent, supporting a 2014 median household income of $87,500 per year. Wage growth was strong last year after a few years of stagnation, and is forecast to remain healthy for the next few years at least. Jobs and Median Income Trends and Projections - San Mateo County 2009 2010 2011 2012 2013 2014P 2015P 2016P 2017P 2018P Jobs Total 321,300 315,300 323,900 337,500 352,500 360,700 367,300 373,200 378,100 381,400 Change -18,200-6,000 8,600 13,600 15,000 8,200 6,600 5,900 4,900 3,300 Change Rate -5.4% -1.9% 2.7% 4.2% 4.4% 2.3% 1.8% 1.6% 1.3% 0.9% Median Income $83,500 $82,200 $82,100 $82,700 $85,400 $87,500 $91,300 $95,400 $99,000 $102,200 Change Rate -2.1% -1.6% -0.1% 0.7% 3.3% 2.5% 4.3% 4.5% 3.8% 3.2% Demographics Steady Growth Ahead: San Mateo County is home to about 750,000 people in over 265,000 households. Population growth is forecast to ease somewhat over the near term, but household growth should be higher as household formations trend back toward longer-term norms. By the Numbers: Growth projections translate into about 7,000 to 8,000 new residents annually in San Mateo County, or about 3,000 to 4,000 new households each year. As is true in most of the core Bay Area, many working in the county cannot afford to live there and thus seek housing in outlying parts of the region. Population and Households Trends and Projections - San Mateo County Population Total 713,600 719,800 728,300 738,700 747,000 755,300 753,800 761,200 768,900 776,800 784,600 Change 9,800 6,100 8,500 10,400 8,300 6,700 6,800 7,300 7,700 7,900 7,900 Change Rate 1.4% 0.9% 1.2% 1.4% 1.1% 0.9% 0.9% 1.0% 1.0% 1.0% 1.0% Household Total 255,900 258,200 260,000 262,400 264,500 268,100 267,400 271,100 275,300 279,300 283,000 Change 3,500 2,300 1,800 2,400 2,200 3,100 2,900 3,800 4,100 4,000 3,800 Change Rate 1.4% 0.9% 0.7% 0.9% 0.8% 1.2% 1.1% 1.4% 1.5% 1.5% 1.3%
The Housing Market Prices Strong Then Slower: Our Burns Home Value Index (BHVI) estimates price appreciation for the entire resale market. Currently, the BHVI for the San Francisco MSA shows prices up 7.8 percent over the last year, and we expect 7 percent appreciation over the next four years. After solid growth projected in 2014 and 2015, we forecast much slower growth below 1 percent annually. Consistent Resale Volumes: There have been over 7,500 resales in San Mateo County over the last 12 months. At the MSA level, we forecast sales growth of about 3 percent to 5 percent for the next two years. Affordability Decreasing: Despite low mortgage rates, the San Francisco MSA s current affordability level is worse than its long-term norm. Specific just to San Mateo County, a household earning the median income would need to pay 61 percent of their income to buy the median-priced resale home and 67 percent for the median-priced new home. This is why so many who work in the county live elsewhere or rent. Expensive New Homes and Few of Them: San Mateo County has long been undersupplied for new homes. This combines with its affluence and appeal to push home prices to extraordinary levels. Over the past year, new home pricing has averaged about $950,000 and mainly for attached product. Burns Home Value Index Trends and Projections - San Francisco MSA Burns Home Value Index 130.71 125.49 122.68 141.35 163.68 171.69 171.86 180.28 181.54 182.81 183.55 Change Rate -1.0% -4.0% -2.2% 15.2% 15.8% 7.8% 5.0% 4.9% 0.7% 0.7% 0.4% Affordability Index 4.3 4.1 3.2 3.0 5.0 6.1 6.1 6.7 7.0 7.1 7.2 Source: John Burns Real Estate Consulting Note: The Burns Affordability Index is scaled from 1 to 10, with 5 set to the long-term norm for a given market, 0 indicating excellent affordability and 10 indicating excellent affordability poor affordability compared to that market s norm. Market Color Where to Build?: San Mateo County has been a notoriously difficult development environment. Years of planning finally brought the Bay Meadows master plan in San Mateo to the market last year, where there will eventually be over 1,000 residential units and hundreds of thousands of square feet of commercial space. The Saltworks planned community in Redwood City, however, continues to face a buzz saw of local antagonism and is currently being scaled back from already diminished expectations. San Mateo County will likely continue to be characterized mainly by small infill sites here and there, with the occasional new apartment complex. 2015 Pacific Union International, Inc. License #01866771