Housing

“Tech Workers Are Never Going Back to the Office”: The Pandemic Housing-Market Explosion Could Upend Silicon Valley as We Know It

As Brooklyn and San Francisco empty out, Los Angeles, Palm Springs, and Miami are booming thanks in part to tech workers’ hunger for space and amenities. And the shift might be permanent. “All the start-ups here are realizing that they don’t need to be in the same place all the time,” says one tech executive.
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It’s a common sight in the era of coronavirus: people lined up six feet apart, masks covering half their faces as they anxiously wait to enter a grocery store, bank, or coffee shop. In Los Angeles, however, lines have also popped up in front of homes and all the way down driveways as potential buyers wait patiently to see a new and coveted property on the market. When it comes to the housing market, the effects of the pandemic have varied widely. In places like New York, real estate prices have dropped as thousands of the city’s highest earners have discovered the joys of suburban life. Meanwhile, places like Connecticut can hardly list homes fast enough, as Jessica Camille Aguirre reported for Vanity Fair. Places like Nantucket, Palm Springs, Austin, and Miami seem to be seeing similar booms. And in Los Angeles, some brokers say it feels as hot as it was in pre-recession 2007. 

In Martha’s Vineyard, for instance, there was a 206% increase in the total value of all land sales in September compared to last year, and the average sale price rose by an astounding 47%, according to a recent report from the local deeds registry. In L.A. county, the median price of homes was up 12.2% in August from a year earlier, and more expensive home sales comprised 22% of all homes sold in California, up from 16% last year, the Los Angeles Times reported. In Brooklyn, home sales have plummeted, reportedly falling by 43% compared to the same quarter last year. In San Francisco, the number of homes sitting unsold reached a 15-year high, per the San Francisco Chronicle. So, why the discrepancy? In short, the old adage still rings true: location, location, location. Only, in the age of coronavirus, location means something completely different than it did eight months ago.

At least part of the spike in Los Angeles, Palm Springs, and Austin might be attributed to tech workers divorcing themselves from the astronomical San Francisco housing market. Ironically, the industry that created the technology that allows us to shop for homes on our phones and work from our kitchen tables is the one least likely to return to the so-called normal of massive tech campuses and huge office spaces. “The tech workers are never going back to the office,” one tech executive told me this week. “Twitter, Facebook, and all the start-ups here are realizing that they don’t need to be in the same place all the time. They can be just as productive, if not more, working from home.” 

The theory among people I’ve spoken with in Silicon Valley is that tech workers trapped in their houses will start to develop new, better technologies to facilitate the process. Google Maps and Gmail, for example, were built as side projects at Google because the engineers saw a need for these tools. Now that tech employees are working remotely, they are finding new problems in the work-from-home lifestyle and creating new solutions to allow them to be more productive. Which means that these products could eventually make their way into our hands, and could justify us never going back to the office. In which case, the diaspora that has taken place from cities like San Francisco and New York to Los Angeles, Austin, and Miami will only continue. Many tech employees and executives I’ve spoken with have said they’ve left San Francisco and Palo Alto for homes in Sonoma and more remote locales. While some of the highest-paid tech moguls have owned homes in L.A. since before the pandemic, several are now there permanently, or at least until there is a cure for the virus. 

A related driving factor behind the real estate crush is that employees who now work from home are realizing the limits of their spaces. As one broker pointed out, “many people purchased their last apartment or house thinking they wouldn’t be there much; you’d eat out every night at a restaurant, go to the gym in the morning, bars on weekends, go on vacations several times a year, and now you can do none of that. So you just sit at your dining room table and think, I hate this place, I need a backyard and an office and a bigger kitchen.” Couple that with the fact that people are changing the way they spend money on dining, their wardrobes, and travel, and you have a group much more willing to invest in their homes. (Before rebounding over the summer, at the height of the pandemic, Commerce Department numbers showed monthly retail sales fall by about 21%, and the travel industry has been one of the hardest hit.) And of course, money is cheaper than it has been for years. According to Freddie Mac, the government-backed mortgage brokerage, interest rates on a 30-year fixed mortgage fell to 2.86% last month—the lowest number in nearly 50 years. 

Then, there’s the weather. Based on conversations with numerous real estate brokers, it appears that markets like Los Angeles, Palm Springs, and Miami fall in a sweet spot comparable to few other places in America. While New Yorkers might have enjoyed dining outdoors on Fifth Avenue as though they were at a café along the Champs-Élysées, when winter comes (and winter is coming), Americans in colder climates will be cooped up inside. Apps like Redfin, which uses algorithms to determine whether a home is popular based on the number of views it gets compared to similar homes in the area and a variety of other criteria, are also illustrative of how much the markets have changed in the past several months. To reach the prized “hot home” status in many areas of Los Angeles, I have found that a house should be viewed on Redfin by about 10,000 people. In Brooklyn, the number seems to be a measly 100.

Los Angeles home sales are reminiscent of San Francisco in the height of the tech IPO days, when real estate prices spiked each time Twitter, Facebook, and a slew of tech start-ups went public or secured another round of funding. Back then, it was common to see similar lines of dozens and dozens of people waiting to tour homes for sale, and it wasn’t unheard of for million-dollar-plus homes to sell for hundreds of thousand of dollars above the asking price in an all-cash deals. Now, brokers have told me that the hottest homes in L.A. and Palm Springs are getting dozens of offers in a matter of days, and bidding wars are pushing the prices of homes well above their relative value, sometimes by several hundred thousand dollars.

It isn’t just home sales that are reaching records, but demand for home improvements also seems to be on the rise. A pool and spa installer told me he hasn’t seen this much business in the L.A. area since 2007, at the peak of the housing bubble. Home inspectors echoed his assessment. “I’m working seven days a week inspecting new homes,” one told me. “It’s pure insanity.” Many think that—like in 2007—this housing bubble will pop, and they’re taking the work while they can get it. But some are predicting that these sought-after real estate markets will continue to be places people want to live. Zillow, for example, predicts that home values in Los Angeles will continue to increase, by 8.3% over the next year. Palm Springs prices are expected to increase by 7.4%.

This, of course, stands in stark contrast to what has happened to millions of people who have lost their jobs and fallen below the poverty line—a factor some analysts believe eager home buyers are overlooking. Some say we still haven’t seen the full economic impact of COVID-19; in other words, the housing market could be experiencing an anomaly of sorts, and the entire system might collapse under its own irrational weight. Others argue that, given that the Federal Reserve expects interest rates to remain near zero until at least 2023, purchasing a home in a hot real estate market is one of the safest bets you can make. Of course, none of these theories take into account what could happen on November 3. Donald Trump could win, and the next real estate exodus could be from the United States to Canada.

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