Talk of Silicon Valley demise vastly overrated, according to Santa Clara County Assessor

Last week, Santa Clara County Assessor Larry Stone, a guest speaker at Silicon Valley Association of Realtors’ weekly meeting, summarized the effects of COVID-19 on the local economy and shared his insights on current economic and real estate market conditions. Stone explained how heavy consumer spending triggered by much of the Covid federal stimulus money consumers had saved, created the perfect storm of high demand, low supply, and soaring prices. This prompted the Fed to increase interest rates eight times to a 15-year high in order to tame the highest inflation since the 1980s.

By raising interest rates, Stone explained the Fed is attempting to bring down prices, slow the economy, and growth in jobs and wages. “It’s a difficult task to do without plunging the economy into a recession, and it’s virtually impossible to restore price stability without increasing unemployment,” said Stone.

Despite recent job cuts and layoffs of thousands of workers in Silicon Valley, Stone has confidence in the region’s diverse economy. “Diversity is a strength because it creates a broader economic base. Silicon Valley’s economy is structured to resist long-term declines in economic activity.”

Stone pointed out that 22,900 layoffs is less than 1% of the workforce. “Big tech has a special kind of resilience because innovation is the driving force behind our success.”

The County Assessor then singled out sectors of the local economy that are booming. Hotel revenue from leisure travel is up 14% compared to pre-pandemic levels. In Santa Clara County, hotel investment is up 174%.

Silicon Valley’s commercial property market has been strong. Stone indicated 132 Office and R&D buildings representing 15.1 million square feet of space were purchased last year. Linkedin, Tesla, Google, Apple, Amazon, and Facebook completed major leases and property acquisitions last year. Apple bought 10 buildings in Cupertino this year. There is 8.9 million square feet of new office space under development in Silicon Valley, nearly two million square feet in downtown San Jose. Tesla continues to manufacture cars in Fremont and has leased a 325,000 square foot office building in north San Jose.

Stone acknowledged rising interest rates have forced a transition on the real estate market. A 60% increase in mortgage rates has pushed monthly mortgage payments past what buyers can afford, causing home sales to fall 27% in Santa Clara County. Mortgages made in Silicon Valley dropped 71% in the third quarter last year.

“Home prices declined 9.6 percent last year, after reaching the greatest increase anywhere in the U.S. in 2021, reflecting a more normal housing market; a healthy market correction in my opinion. The residential market has become evenly matched between buyers and sellers,” said Stone.” bay Area home prices are more volatile than the national average. They typically rise faster during boom times and fall further during recessions because our region is tied to the boom-bust tech sector.”

Stone balked at the “Great California Exodus.” He stated, “In 2022, California had a net loss of 100,000 people. That’s one-fourth of one percent, in a state with 40 million people. Hardly a crisis.”

Even as Californians are moving to Texas, Arizona, Nevada, Washington and Oregon. New Californians are coming from Texas, Arizona, nevada, Washington, and New York, and while 60% of employees who left Silicon Valley primarily for cheaper housing, they stayed in Northern California.

Stone ended his talk telling Realtors, “The global attraction of Silicon Valley is not going to contract. Eighty percent of all tech R&D occurs right here in Silicon Valley. That’s not going to change anytime soon. I think the demise of Silicon Valley and California is grossly exaggerated.”