The bad news for Western housing markets? The collapse of Silicon Valley Bank suggests more pain could be on the horizon.
On one hand, it’s unclear how many tech jobs could be lost as a result of regulators’ Friday decision to close the nation’s 16th largest bank. On the other, the demise of Silicon Valley Bank clearly signals that the Federal Reserve’s ongoing rate hikes will cause further pain in the tech sector.
“Unfortunately, home prices in tech and venture capital hubs are already down the most from 2022 peaks for [the housing] markets we track across the country. Any additional setbacks for tech & venture capital (now brewing) aren’t ideal,” Rick Palacios Jr., director of research at John Burns Real Estate Consulting, tweeted on Saturday.
If tech layoffs continue to mount, and mortgage rates remain elevated, it could keep housing markets out West in correction-mode. That could especially be true if tech layoffs accelerate later in the year when the housing market has moved into the slow season.
Let’s take a closer look at the data.
Among the nation’s 400 largest housing markets tracked by Zillow, 276 markets have seen local home prices fall from their respective 2022 peak. That includes 32 markets where home prices are down over 5% from their 2022 peak.
So far, the biggest seasonally adjusted home price declines have occurred in San Francisco (down 9.2%), Bend, Ore. (down 8.3%), Santa Cruz (down 8.1%), Boise (down 8%), and Austin (down 7.9%). Every one of those markets, of course, has a high concentration of tech employment.
There’s no doubt about it: Tech job losses, coupled with frothy home prices, made Western housing markets susceptible to an interest rate-induced correction.
That said, there are other factors at play.
For instance, home builders and iBuyers—who are more likely to slash prices down during a correction—make up a higher concentration of inventory out West. As soon as Western housing markets, like Reno (down 7% from its 2022 peak) and Seattle (down 6.6%), slipped into correction-mode last summer, builders and iBuyers began aggressively slashing house prices.