Exodus from Silicon Valley? Not in Housing!
January 26, 2021
There’s a story going around that there is a great exodus of tech talent decamping from Silicon Valley. Able to work anywhere remotely, they may never return. The narrative sounds like the end of a punishing storm for long-shut-out buyers. It sounds like the shattering of hubris of aggressive sellers, and might be the comeuppance of Bay Area Coastal types in favor of sensible midwestern towns and unregulated Texan frontiers. But is it true? And should home sellers in the Peninsula worry? Should house hunters in the Peninsula rejoice?
Exec Summary
There is no evidence of an exodus, based on a broad view of Sale Price, Closed Sales, and Dollars Per Square Foot across San Mateo and Santa Clara counties.
There is also no evidence of an exodus in the most expensive zip codes.
Less dense places (Woodside, Portola Valley, Hillsborough, Los Altos Hills) have appreciated much faster in 2020 than very dense places (San Francisco).
To the extent people are leaving, it seems to be renters or adult children; nothing in housing data suggests any mass migration.
It is still very much a seller’s market; buyers should not expect that “remote working” will offer them bargains anytime soon.
The Narrative
We’ve all read the stories. “They Can’t Leave the Bay Area Fast Enough.” Tech workers are “fleeing”. The word “exodus” pops up a lot. And, per the narrative, people are leaving to less expensive, more relaxed, less regulated places. Californians are moving to Texas – so much so that the Texans are sick of us.
Is this really happening?
It is certainly the lived experience of many of us in the heart of Silicon Valley that people are more spread out now. Most of us have colleagues working from Portland or Phuket, or kids zooming in to Palo Alto elementary schools from Tahoe or Tallahassee. We know young adults who’ve realized that SOMA and SOHO are pretty boring without everything that usually makes San Francisco or New York City great.
So, given this apparent outflow of people, there should be great bargains for home buyers in Silicon Valley, right? Sellers should be shaking in their boots, as Apple, Google, Facebook, and everyone else enables remote working forever, gutting the main driver of housing appreciation around here, right?
Let’s skip the clickbait, look at the data, and see if we can see any opportunities for buyers in the mid-peninsula (Los Altos to San Carlos).
The Whole Peninsula
Let’s go wide first. If we looked at median home sales price for all of San Mateo and Santa Clara counties (that’s a whopping 2.694 million people from San Jose to the edge of San Francisco, and more or less what people mean by “Silicon Valley”), do we see evidence of oversupply leading to declining prices?
Huh. We see rising median sales prices for years, and then somewhat of a flattening. But certainly no decline. The evidence here doesn’t seem to track to the narrative. In fact, on an annualized basis, 2020 was stronger than 2019:
How about, instead of sales price, we look at number of transactions. If everyone is fleeing, we should see a big rise in sales, as those cocky sellers are being trampled by the competition to get out of state, right?
We actually *don’t* see a big spike in sales; things look relatively stable from the macro view. The chart above shows the number of Closed Sales in each of the past 5 years, and a rolling 3-month rolling average function has been applied to smooth out jitters. The regular heartbeat of the market is obvious for anyone to see: February or March is the low point of every year (until 2020), and June or July had always been the peaks. 2020 was different because of COVID; the market was materially subdued in the normally strong spring season, but things just did not stop in the Fall. But the magnitude and behavior of sales? Pretty much normal.
What about Dollars per square feet? Perhaps the departing techies are selling expensive houses on the cheap, causing a “secret crash” that would not appear when viewing median figures? Are job-killing regulations and Zoom eviscerating home values?
Nope. Just… nope. $/ft2 is generally rising. We can look at any number of metrics, but there is no macro evidence of a crash in housing across Silicon Valley that would support this “techies are fleeing” narrative.
North Palo Alto and Atherton
What about if, instead of looking at *all* of San Mateo and Santa Clara counties, we look at a smaller, more elite section of Silicon Valley. Maybe the “median” home of millions of people is not representative of what the trend-setting billionaires are doing. After all, Elon Musk just moved to Texas. Oracle did too, though Larry Ellison actually moved to Hawaii. So maybe if we look at the high end, we’ll see some evidence of exodus?
Let’s look at just two zip codes: 94027 (Atherton, the most expensive zip code in America), and 94301 (North Palo Alto, the eighth richest). These two zip codes are often considered the pinnacle of desirability for Silicon Valley. So what has happened to the median sales price here over the past year?
Ah ha! Despite extremely high absolute values, Atherton (in grey) seems to be faltering, and Palo Alto (blue) is slowly leaking air. Is this proof of the exodus? Let’s see if more people are selling:
Sales are somewhat up… though what looks like a steady ramp up looks suspiciously like that “lack of Spring, turbo-charged Fall” effect we’ve seen earlier. Atherton (grey) is at its 5-year peak for sales (barely), but Palo Alto has been had more sales in two of the previous four years. So its hard to find any increased sales activity caused by an exodus here. How about dollars per square foot?
If anything, this metric is rising up over the past 6 months. There just is no evidence of a crash here. And we’ve shown in a previous analysis that Palo Alto’s decline in median prices may be more related to a change in the mix of what is selling (lower-priced homes transacting at the same velocity, higher-priced homes moving slower) rather than a decline in values. This is consistent with $/ft2 still rising.
How Many People Actually Move?
No matter how we look, we just don’t really see any evidence of this claimed torrent of outbound people. Last year’s activity looks generally like other years, broadly speaking.
However, if a high fraction of people in a population move in or out in a year, maybe there is some cause for alarm. If highly skilled engineers and senior leadership talent are being rapidly hollowed out, the character of our neighborhoods and perhaps the local economy might change. Is this happening?
Let’s look at Palo Alto in isolation. Palo Alto is eclectic and global, with potentially highly mobile people who typically were not born here. If anyone could leave, it would be them. So how many do? How flighty are Palo Altans?
Here are the number of on-market single family residence sales in all of Palo Alto for the past 3 years:
Not much, right? There are 26,161 homes in Palo Alto, per the census estimate in 2019. 334 homes sold out of 26,161 is not much… only 1.2% of Palo Alto housing stock turned over in 2020. Admittedly, this is only the on-market data; some transactions happened privately. But not *that* many. And just because you sell your home does not mean you are leaving the city or the area.
Palo Altans are not running away; we are incredibly stable (the Young Platinum Group have been proud Palo Alto residents since 2006).
Where are People Moving To?
Despite the overhype, some people *are* moving out of the Bay area. Where are they going to?
Google this topic and it seems that everyone is going to Texas or Florida, and flourishing in their more deregulated, low tax environment. Dig a bit deeper and you’ll see that some of these articles are predicated upon one moving company’s experience, or upon Keith Rabois justifying his personal choices and trying to get everyone to go along. But what if we want actual data to see what is happening? People don’t file a form with the government when they leave, but LinkedIn actually has really good data on where people say their job is, and how that changes over time. What do LinkedIn profiles say about movement out of the Bay Area?
This chart shows how much Bay Area emigration went to each of these places in the past 12 months. For every 10,000 people in the SF Bay Area, 5.42 went to Seattle in the past year.
So the first thing to note is the cities… the top ones are the usual suspect where the big tech firms have offices. Unfortunately for us, LinkedIn does not share the entire database, so we can’t say whether the sum of all the “rural Texas” locations add up to a lot or a little. The next thing to notice is the scale of migration over 12 months… 5.42 per 10,000 moving out to Seattle. One could imagine quite a long tail on the full version of this chart, adding up to a lot. Just the listed places sum up to 28 people per 10,000, or 0.3% in a year. That sounds like a large flow of people out… until you remember that this is only half the story. The Bay Area also has a lot of immigration as well.
Where Are People Moving In From?
During the past year, top places that our newcomers came from include big East Coast American cities, and the tech capitals of India. The scale of the inbound chart is half that of the outbound chart, suggesting that there is a net loss. Again, we can’t be sure, because the shape of the top 10 might not be representative of the whole.
A Movement Away From Density?
Some of the alarming exodus news seems to conflate California with San Francisco with Silicon Valley. But obviously all three areas are not experiencing the changes of the past year in the same way. Could it be that San Francisco is depopulating and Silicon Valley is gaining (or at least stable) as a result? Let’s look at our broader region through the lens of density and see if that explains anything.
To some degree, the practicalities of COVID have simply made living in a dense environment less easy, for the obvious reasons. And San Francisco is the second most dense city in the United States . So we *should* expect some moderate degree of out-migration simply due to this. If people were leaving the entire San Francisco Bay Area because of the high cost of living, we might expect *all* Silicon Valley municipalities—including the less dense ones—to see some sort of decline is housing price. Do we see a flight from the entire Bay Area, or rather a rebalancing within the Bay Area from high density to low density?
First let’s get a glimpse of where density is in the Bay Area. We can visualize the number of housing units on each part of the regional map, and color code that (purple = lots of people, light green = sparsely populated):
The City, obviously, has the most density, with the Peninsula being various shades of “suburb”. You can see little dots of purple for downtown Mountain View and San Mateo, and also noticeable, yet less dense cores, in San Carlos, Menlo Park, and Palo Alto.
For some of the areas that the Young Platinum Group is most active in, we can compare the relative number of housing units in each dot on the map above:
We don’t often look at density up and down Silicon Valley, but there is a reason why the White Oaks/downtown of San Carlos feels kind of like the Community Center/downtown of Palo Alto; they have very comparable densities!
If there really is an exodus caused by remote working, the attractiveness of a less intense lifestyle, and overall cost of living, we should expect *all* these areas to decline in 2020. However, if what we are experiencing is a flight from density, then we should expect to see relative declines in San Francisco, but relative increases in Portola valley, Los Altos Hills, and Woodside. So… which one is it?
First, the absolute data (51,644 transactions in the selected cities, with Single family Residences only for the Peninsula but also including condominiums for San Francisco):
Argh! No one can read that eyechart! What if we look at year-on-year change?
Wow – look at those pops in the most spacious areas of Silicon Valley! And it’s not like the other areas were terrible slouches either. We need to be cautious of the large swings that can happen with small samples… just look at how Woodside bucks around. But something is happening that is rewarding the rural areas with higher appreciation. This data is a validation of our experience (we are working with buyers and sellers every day) that people aren’t so much leaving the area as they are expanding to something with two more bedrooms and a bigger yard.
There is a moderate directional trend here that the denser places like San Francisco (up 1%) and Palo Alto (flat) are having trouble justifying their traditional premiums. One reason for this is that “being close to the action” is worth less when there is… at least temporarily… no action. But perhaps density, and reallocation from more dense to less dense, is part of what we are experiencing.
To put the recent surges in rural areas in context, let’s look at the indexed appreciation for the past eight years:
You can note that the lines for Atherton, Woodside, and Portola Valley tilt up notably in the final year… but also that they have generally lagged the pack since 2012. That should put the scale of the “COVID migration” in context. Redwood City has still seen better absolute performance than everyone; its relative value and purposeful urban planning count for more than a pandemic, it would seem.
Conclusions
The bulk of the real estate data suggests that there is some flow from high density to lower density, but no titanic drops in value or collapse in prices. Buyers looking for a bargain will have to keep looking, because the rumors of the exodus of people from Silicon Valley have been greatly exaggerated.
It is not true that no one is leaving… some people are. Many of those moving away are renters… rent in San Francisco has indeed dropped dramatically. Some of the emigrants may have been members of a household where one person left and others remain (parents in the family home remain, globetrotting adult child works from a beach). Some of the emigrants sold a home to get out of the area… but they met in the market with a newcomer who was willing to pay “full price” for what they were selling. And even so, the number of people who did so last year is totally in line with recent history. Every seller does have a buyer, and there is no huge discontinuity in the housing market due—whether in price, volume, or value—from these people leaving the Bay Area in 2020.
And the young mobile tech workers who are dialing in from Tulum? Do we really think they won’t want to be back in SOMA just as soon as it is safe, enjoying a new Roaring Twenties with friends in a trendy densely packed bar?
If there is any exodus, it is not happening in housing!