San Jose Home Prices Jumped Even During the Pandemic

The for-sale housing supply in San Jose has become smaller and less affordable while renters may have seen a small reprieve during the Covid-19 pandemic that has rocked every part of residents’ lives over the past year.

San Jose officials recently released the city’s Housing Market Updates report, a spotlight on both apartments and single-family homes in 2020. The fifteen-page report compares last year’s trends to the past decade. The data show even as pandemic made it easier for workers and companies to uproot from the region, for-sale home prices continued to climb, pushing home ownership of a median-priced home out of reach for nearly 80 percent of the city’s residents.

While the number of homes on the market dipped by 40% in the last quarter of the year alone, single-family median home prices jumped by 14% to an average cost of $1.225 million. That means prospective buyers must earn at minimum $98 per hour, or $203,497 per year, San Jose data show.

“The Silicon Valley is unique because we have a high concentration of highly skilled and highly paid labor and with that comes higher salaries and potentially higher prices,” said Sandy Jamison, owner of brokerage Tuscana Properties and former board president for the Santa Clara County Association of Realtors. “Everything is going to continue to rise together—the challenge is that people’s salaries don’t always rise as the cost of things rise.”

Jamison says many of her clients—particularly those older than 55—want to sell their homes, but have put the process on pause as the pandemic and related lockdowns ebb and flow. That has only further diminished the available housing stock, contributing to the rising costs.

But as for-sale housing got more expensive and scarce, many renters saw an opposite trend. Lease costs dipped last year as landlords scrambled to stymie rising vacancy rates, the data show.

Average San Jose rents dropped by 7.3% compared to the end of 2019, while the average residential vacancy rate in San Jose hit 8.7%—a sizable jump compared to past years and a notably higher rate than the 6.5% national average national vacancy rate.

How fast rents bounce back upwards or vacancies dip downwards to pre-pandemic levels remains to be seen, but the key deciding factor, Jamison says, will be how fast city and county officials approve new homes in the near future.

As of last year, building permit numbers were on the decline—potentially a symptom of the oscillating lockdown orders that slowed the pace of business, particularly near the beginning of the pandemic in March and April.

Last year, San Jose issued 1,375 residential building permits, approving 663 affordable apartments in that lot. Another 378 were issued for accessory dwelling units (ADUs), or a small second home that homeowners often build in their backyard.

But those numbers represent a significant dip from 2019, when 2,425 residential building permits were granted, including 853 new affordable units. A total of 416 ADU permits got the green light in 2019 as San Jose officials approved new ordinances and programs to make building the backyard homes a little easier.

Jamison is hopeful the downward trend will reverse course—and fast.

“We’re going to continue to face these challenges until we can solve the supply problem,” she said. “It always comes down to supply. We do need to build as much as we can, but we’re so far behind it will take years to catch up.”

Read more of the city’s findings here.

21 Comments

  1. Explain why it takes a salary of $203,000/year to afford a house costing $1,225,000. It doesn’t.
    The “unaffordability” of housing is deliberately exaggerated in order to create the impression of a “crisis”. When everybody’s been sold on the idea that there’s a crisis there becomes an urgency to solve it by whatever means including elimination of building codes which were designed to keep neighborhoods nice, eliminating single family zoning, developing Coyote Valley etc.
    Don’t fall for this propaganda.

  2. To all you genius, real estate investment expert lifer-renters who were and are so sure they know everything.

    This just in, you didn’t ever and you still don’t. Know anything.

    For the rest, stop listening to people who think they know everything but do nothing.

    If you are a renter, move. Move to where you can buy a house, where you’re kids can buy a house. There is NO future for you here, if COVID couldn’t kill real estate, nothing can.

    There is no community here that can’t be built somewhere else where you OWN not rent. Own the house, own the community, own the village, the town – you will NEVER own a city no matter how many SJSU associate professor radicalized city councilmembers you elect.

    If you stay and rent and wage slave your life away you only have yourself to blame.

  3. If the median home price is $1,225,000.00 then a conventiaonal loan to value would be 80% or $980,000.00. This of course requires that you have sufficient equity or 401k or stocks to cash in worth $245,000.00. I believe most people can swing that from just about anywhere in the country. A 30 year fixed rate today April 7th, 2021 at First Mortgage Direct is at 3% APR and no points for a monthly payment of $3,228.00. Add another 1% of sale price per year for Prop 13 tax rates in California for new sales and we come to another $1,020.00 per month. Add another $150.00 per month for Property Insurance and the combine P&I, Tax, and Insurance come to $4,398.00 per month to get a nice home without paying any HOA fees of another $500.00 per month or even PG&E provided the home have solar PV, which many at that price actually do. PG&E on average is $3,700.00 per year or $308.00 per month with a 6% per year increase already approved by PUC over the next three years. Water is another $100 per month and Garbage is part of your property tax payment and comes to about $420.00 per year or $35.00 per month. So we add another $135.00 per month for water and garbage. So far we come to about $4,533.00 per month. Average rents per month most likely will exceed that amount for a similar single family home on it’s own 5,000 to 6,000 square foot lot. When I bought my home in 1978 interest rates were 9.75% and the payment consumed about 50% of my take home pay. So if we take $4,533.00 per month divided by 50% it comes to $9,066.00 dollars per month that you need to take home. That leaves about $4,533.00 per month for food, clothes, entertainment and car payments if any. So, $9,066.00 per month take home is about $12,951.43 per month gross with 30% payroll tax. By multiplying $12,951.43 times 12 months in a year I get a yearly salary of $155,417.16 to buy and afford the median price home here in San Jose, CA. We have great higher paying jobs and the best overall weather with a comfort index of 8.8 out of 10. Other places may be better climate wise but not too many, and none with the jobs that we have here in the Valley of Hearts Delight. We have plenty of city life, stores (Costco), and entertainment. We have the beach a short 35-40 minute drive from downtown. We have light rail, buses, Caltrain and now BART.

    When I bought I was married, although with a new born the wife stayed home. My salary at a local building materials firm was sufficient to pay for all of our needs, however, we no longer went on ski vacations or any vacations for that matter for another two years. My salary did increase over the years as did the size of the family. Today it may take two jobs to handle the mortgage. So maybe between two people working the $155,417.00 is more likely a scenario for some. But what is for certain rents are going up very fast. To rent just a bedroom in a three bedroom home is around $1,400.00 per month.

    Now here is the kicker. A conventional loan requires a 20% down payment. That means you are leveraging at five to one your investment of $245,000.00 into the safest investment vehicle on earth. Also, you have the added benefit of living in your investment rent free. How can I say rent free? Simply take the $1,225.000.00 total value of your investment multiply it times the average market increase per year. So over the last 8 years that comes to about 1% increase in home value per month or about 12% per year on average. That comes to $147,000.00 return on investment (ROI) in year one. In year two $164,000.00, and so on. Actually you have recouped your initial investment of $245,000.00 in the first two years with a $66,000.00 bonus to boot. That bonus could go along ways to paying a realtor if you needed to sell after two years. So basically after two years you have lived rent free. Every year you stay after that is surely a bonus.

    Now compare that to renting. Every month instead of paying a banker you are paying someone else’s profit for buying and investing in property. Rent has absolutely no residual value once paid out. It gives you nothing in return past a place to live for the moment. Why not live and pay into your future instead? Then after 43 years you have something worth $1,225,000.00 that cost only $65,025.00 to start with. Now you can relax a bit and live off of social security if you like. Pass it on to your children or rent out a room for extra income. The sky is the limit. Knowing that you are worth something and never have to work another day in your life is security and that my friends is priceless.

  4. Oh I forgot a most important part. You are able to write off most of that property tax and all of that mortgage interest on your income tax return. Talk about a bonus! Instead of paying the government you are a paying a banker and living in your own five to one leveraged investment. How cool is that? Money makes money when invested. So go out there and just do it!

  5. If you don’t have ALL CASH then you probably won’t be buying. At least for single family homes in San Jose, expect a minimum of 10+ offers for ALL CASH exceeding the asking price.

  6. true, but home ownership is a good play pretty much anywhere in the US if you can

    just not in San Jose, they invited in Blackrock et al and the game is over

  7. They can jump all they want 🥵only !d!ota are welling to pay that Price you Lucky if you made it halfway 💩how much money they are laundering maybe 7/11 workers can pitch in ponchute

  8. Anecdotally just looking at Zillow I’ve seen a significant increase in listings in the last few days. Let’s see what happens when interest rates creep up and foreclosures return.

  9. Mr. Smith,

    Using a few assumptions a simplification or two:

    1) Before Tax Salary is $200,000

    2) Other than mortgage, the bank assumes $500/month in car payment and $500/month in revolving debt service, no student loans

    3) DTI Requirements: Conventional loans (backed by Fannie Mae/Freddie Mac) traditionally require 43%; FHA and USDA loans traditionally require 43 %; VA loans traditionally require 41%

    4) One can get a 30-year fixed for 3.5%

    5) I am going to waive off mortgage insurance, well, because I’m lazy

    6) Fannie Mae 97% LTV requirements (but you’d be crazy to not put 80% done)

    7) VA Loans, from what I can remember, can be done with 0% down.

    97% LTV Path

    Buyer makes a $37000 down payment, resulting in a monthly mortgage payment of $5360, along with car and revolving debt, put DTI at 38.15%. Tick, you’re in a house. But make sure you’ve got that mortgage insurance covered, it won’t be 5% of your income though.

    80% LTV Path

    Buyer makes a $246000 down payment, resulting in a monthly mortgage payment of $4419, along with car and revolving debt, putting DTI at 32.51%. Tick, you’re in a house.

    VA Loan Path

    Buyer makes a $0 down payment, resulting in a monthly mortgage payment of $5524, along with car and revolving debt, putting DTI at 39.14%. Tick, you’re in a house.

    That’s just simple underwriting, the bank may dig deeper to better account for the DTI. However, it is not unheard of to go above those DTI if you have good credit, as far as I heard. The DTI is cumulative across all you properties. I have not done too many deals on these residential rules, we usually only do leverage on multifamily and those use different metrics (DSCR vs DTI) with different rules.

    Disclaimer : I am neither a mortgage broker nor a realtor in any way shape or fashion, I simply buy a lot of real estate and run underwriting models on many deals. This is not professional advice, simply a mathematical exercise.

  10. JOE SMITH, a stretch, repeat, a stretch, is thirty per cen tof one’s income. Many stretch more to three times one’s income. (You income should be at least one-third the home price.) The old rule of 2 1/2 times income for a maximum has always been sound. That’s forty per cent of the home price. (From the later 1970s-early 1980s, it was raised from 25 per cent to 30 per cent.) That should cover all housing costs, but typically it’s just use as a quick measure for home price (or rent).

    $1,225,000 price

    $367,500 one-third, (more than 30%)
    $408,333 minimum, $490,000 old measure

    I’d be even pickier and say it should be after-tax income, not pre-tax income.

  11. Mr. KULAK-Not, those mortgage payments seem realistic in the Bay Area now, as with debt to income. Compare payments to rents, too. Compare both to incomes. The old safe rules are as though from another world in the Bay Area.

    What happens when interest rates finally rise?

  12. Mr. Local,

    These are 30-year fixed rates, meaning they are good for the maturity, so one has an insurance, I wouldn’t buy in San Jose, but if you can get into a 30 year mortgage in the mid threes when your 35, you could do worse, as you are looking at a $1M-$2M asset paid off on your 65th birthday. Sell it and buy a condo and an apartment building and live for free and net $100K in rental income.

    Frequently, the property prices float with interest rates, that is low interest rates drives up prices, an increase in interest rates drives prices down.

    Now if fail into the ARM trap, which looks to be in the high 2s now, you may very well be in trouble, as your payments go up simultaneously with reduction in property valuations.

    To reiterate, Joe Smith asked how do you do it, and I offered the actual cases with the DTI requirements on how you would do it, and it can be done.

  13. Not Suckered,

    I would tend to agree, however most would take 10-15 years of renting to get to a $400K+ down payment unless they get a RSU pop or a parental infusion. Many would never get there. I did sell a vet a house I owned one and he put 0% down. He has not sold yet and has made $400K in equity appreciation on top of what ever he has paid down the loan on. Good for him, but if he worked until he had $400K+, he would have rented for life. I have looked at many properties in short sale and on homepath.org and have seen many title reports, and blow-ups are usually a result of ARM increases in rate or a spike of debt from a second lien or HELOC – i.e. the ATMing the house.

    If my sons ask me, again this is not professional advice, 20% down to avoid mortgage insurance, 30 year fixed at or below 4.5%, Case-Shiller increasing but midpoint between mid and max, NEVER attach a second lien and if they found themselves in the position they could pay it off early, a HELOC as an emergency line ONLY.

  14. This entire mess is because this country messed up big and turned something that is supposed to be a shelter into an investment.

    That has turned these petty boomers into NIMBYs trying all they can to protect their ‘investment’. Their homes that they purchased decades back did not just go up in value because they did something. They just sat their fat-asses on that piece of land. It’s those entrepreneurs that created jobs that did it while these NIMBYs obstructed every chance they got.

    But this needs to change. This will have to change if we want our economy to thrive and our planet to survive.

    Real estate should not suck up so much of an average Joe’s income that he doesn’t have anything left over to spend on things that truly drive our country forward.

    So much of our country’s productive capital parked in a dumb asset like real estate is what will eventually end this housing as an investment experiment. Enjoy it while it lasts.

  15. We need to build dense, we need to build tall and we need to build walkable, bikeable, public-transit rich communities. Single-family zoning needs to be curtailed.

    Otherwise we will continue to sprawl out and these same petty NIMBYs will complain about traffic.

    And prop 13 needs to go and that needs to start with the NIMBYs first. Single-family zoning doesn’t come cheap. If you live in one, you need to pay up for the cost of maintaining that infrastructure. If you don’t have the money, shut your trap up and stop NIMBYing.

  16. BEANBAG

    Oh I wish houses weren’t investments

    Oh I wish capitalism would get dismantled

    Oh all property is theft

    Utter Hogwash

    Just ask Patrisse Khan-Cullors.

    All your rhetoric only leads to one thing, less supply and higher prices

    Stop trying to punish the rich and exercising your resentment, move somewhere you can afford to buy your own house and stop making it so easy for these rich people to get richer off your work, you will never own a thing hating on the rich

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