South Bay Area Real Estate Market: One of the Hottest in 2021?

A recent forecast from the research team at Realtor.com predicted that the South Bay Area real estate market could be one of the hottest housing markets in the country in 2021.

As it turns out, there’s a lot of demand for homes in the South Bay right now, but very low inventory. This makes things more competitive for home buyers, while putting upward pressure on prices. Will we see more of the same in 2021?

San Jose and South Bay: Hot Housing Markets in 2021

While the U.S. real estate market as a whole is expected to remain strong next year, some local housing markets will undoubtedly perform above average. Analysts predict that the San Francisco South Bay region will be one of those standouts.

On December 7, Realtor.com’s research team published a 2021 forecast for the nation’s housing market. Specifically, they created a top-ten list of (what they believe) will be the hottest real estate markets of 2021. The San Jose-Sunnyvale-Santa Clara metropolitan area came in at #2, on a list of 100 U.S. metro areas.

Geographically, the “South Bay” is a subregion of the broader San Francisco Bay Area. It’s roughly synonymous with Santa Clara County and “Silicon Valley,” and includes such cities as Cupertino, Mountain View, San Jose and Sunnyvale. This tech-heavy region is home to Apple, Google, Intel and Yahoo, to name a few.

And it’s currently one of the hottest housing markets in the country, in terms of sales activity, price growth, and other factors.

Some Home Buyers Are Shifting to the South

Forecasts for the South Bay real estate market predict another year of low inventory and high competition. People currently living in the area are familiar with those trends.

But there are other, more recent factors that could affect the South Bay housing market in 2021. The coronavirus pandemic is one of them.

Over the past six or seven months, researchers have noted an interesting migratory trend nationwide. In short, many folks have been leaving crowded cities in favor of more suburban area.

We’ve seen this trend locally, with residents of San Francisco (the city) moving to other parts of the Bay Area or elsewhere in the state. Quite a few have moved to Sacramento, which is why it took the #1 spot on Realtor.com’s top-ten list for 2021. But there is also a southward migration trend happening, from San Francisco to the South Bay Area.

A quote from Realtor.com’s 2021 housing market forecast:

“Also located in Northern California, San Jose is the largest city in Silicon Valley. Apple, Google, Facebook, Linkedin and even realtor.com^® are all within commuting distance of San Jose. Unsurprisingly, the area’s strong economy and top notch school system … lure top tech talent from all over the country. … Without a ton of room for new construction, inventory in the area is tight, so serious buyers should expect to pay above asking price.”

So we have a supply and demand story, as usual. There is growing demand within San Jose and other South Bay Area real estate markets, but very low levels of housing supply. This means home buyers have to compete fiercely for limited inventory. It’s also why home prices in the area are climbing as fast as they are, as we approach 2021.

A Strong Home-Price Forecast

This isn’t the only bold forecast for the South Bay Area real estate market in 2021. Economists and housing analysts from Zillow have issued strong home-price predictions for nearly every city in the Silicon Valley / Santa Clara Valley region.

In December 2020, for example, the company wrote: “San Jose home values have gone up 14.2% over the past year and Zillow predicts they will rise 9.2% in the next year.”

They offered similar forecasts for Cupertino, Mountain View, Sunnyvale, and other real estate markets located in the South Bay region. In all of these cities, the median home value rose by double digits during 2020. Above-average gains are expected in 2021 as well, though we could see some cooling and moderation.

None of this is surprising. We’ve seen home prices in these (and other California cities) climb steadily throughout 2020. That might seem counterintuitive, given the ongoing coronavirus pandemic and economic restrictions. But there’s no denying the upward trend of house values in the area.

If you only looked at home prices and sales in the South Bay Area housing market — and nothing else — you wouldn’t even know there was a health crisis going on. So it’s not much of a stretch to predict a continuation of these trends in 2021, especially with a vaccine on the way.