This article is part of an ongoing effort to publicize local housing-market data collected by the Department of Housing and Urban Development (HUD). The information below pertains to the San Jose, CA economy and real estate market in particular.
This data was collected and compiled by economists and housing researchers at HUD. We have added our own notes and explanations where needed.
Here is HUD’s current view of the real estate and rental market in the San Jose-Sunnyvale-Santa Clara metropolitan area.
San Jose Economy and Population
The San Jose metropolitan area is located along the San Francisco Bay in Northern California. It includes both San Benito county and Santa Clara county. Often referred to as the heart of the Silicon Valley, San Jose is home to more 6,000, many of which fall into the technology sector (such as eBay and Cisco Systems). Standford University is also located in the San Jose metropolitan area. The university is a major employer for the area and has an annual economic footprint of around $3.8 billion.
According to 2012 estimates, the population of the San Jose metro area is around 1.8 million. Since 2009, the population has grown by 14,450 per year, on average. This is a slower rate of growth than a few years ago. Between 2006 and 2008, for instance, the population grew by an average of nearly 23,000 per year. The key difference is the economy. Employment conditions in San Jose were much better in the 2006 – 2008 window, especially in the tech sector. The declining rate of population growth has had an effect on the local rental and housing markets as well.
Over the past 12 months, the employment picture in San Jose has brightened somewhat. But it still hasn’t returned to the level seen before 2009, when it first started to decline. During the one-year period from February 2011 to February 2012, the San Jose job market added 23,650 jobs (measured by non-farm payrolls). This is a significant increase over the previous 12-month period (Feb 2010 – Feb 2011), when only 8,350 new jobs were added.
That’s the good news. The bad news is that payrolls are still down by more than 11,000 jobs when compared to the average from 2006 – 2008. But perhaps it is unrealistic to look at those boom-year statistics as a model.
Most economists expect to see additional job growth in the metro area for the remainder of 2012. This growth should help to bolster the San Jose real estate and rental markets.
2012 Housing Market and Home Prices
Despite improvements in other areas of the local economy, the San Jose metro housing market as a whole is still sluggish. At least, when measured by home sales and prices. Much of this is the result of tight standards in the mortgage lending industry, a condition that evolved in the wake of the housing collapse of 2008 – 2009. During the 12-month period from February 2011 to February 2012, new and existing home sales declined by 4% (source: Hanley Wood, LLC).
Sales prices for both new and existing homes in the San Jose area also declined. Between February 2010 and February 2012, the average sale price fell by 2%. Sales prices are down 18% from the comparable periods between 2006 and 2009.
San Jose Condo Sales: Large Chunk of the Market
While the San Jose real estate market is lagging in some areas, it seems to be advancing in others. Condo sales are one such area of improvement. During the 12-month period ending in February 2012, condo sales in the metro area accounted for roughly 30% of all home sales activity. An estimated 6,225 condominiums were sold during that period, which marks an increase of 5% over the previous 12-month period. Much of this increased sales volume has occurred within the city of San Jose.
The rising interest in condos could be attributed to falling prices in that market. Average condo prices declined slightly over the last 12 months, in both the metro area as a whole and within the city of San Jose. The average condominium price in the metro area is currently $385,600 (and $326,800 within San Jose city limits).
Improvements in the Area of Foreclosures
Mortgage delinquency is another area where the San Jose housing market seems to be improving. In February 2011, 6.6% of all mortgage loans in the metro area were distressed. In this context, “distressed” refers to properties and loans that are either (A) 90+ days delinquent, (B) currently in foreclosure, or (C) currently in a bank-owned / REO status. By February 2012, that percentage had fallen to 4.7% (source: LPS Applied Analytics).
Distressed homes increase inventory levels with properties that are frequently sold below their market values. This has a negative effect on home prices in both the short term and long term. Thus, the decline of distressed homes is a positive trend for the San Jose real estate market and should help with home-price stability going forward.
Fewer Rental Units Available
Are you planning to rent a home in the San Jose metro area? If so, you should know there are fewer rental units available today. The pool of renters has swelled over the last year, due to economic conditions as well as population growth. Rental housing construction has not risen to meet this increased demand. As a result, the current rental market in San Jose can best be described as tight. The rental vacancy rate dropped slightly from 4.3% in April 2010, to 4.0% in March 2012.
There are slim pickings on the apartment side, as well. The apartment vacancy rate fell to 3.1% during the last few months of 2011. At the same time, rents are rising. Over the last year, the average monthly rent in the metro area rose by 12% to $1,773. Rents have gone up in downtown San Jose as well, though not as steeply (6%).