Following 2023, a year characterized by rapidly rising interest rates, evolving buyer preferences, and economic fluctuations, 2024 brought growth and stability to the Silicon Valley real estate market. Both home sales volume and average prices showed year-over-year increases, reflecting renewed confidence among buyers and sellers alike.
As we settle into 2025, several key factors are poised to shape the real estate landscape. In this blog, we’ll cover what you need to know right now about the devastating Southern California fires, examine industry expert predictions, take a peek at where interest rates are and where they likely are going, check out some interesting demographic trends, and also look at the possibility of LA’s notorious “Mansion Tax” coming to Silicon Valley. We’re the Kiersten Ligeti and Patricia Karoubi Team at The Agency Los Altos and we strive to keep our clients informed on what’s going on in Silicon Valley real estate. Keep on reading to learn more!
The Impact of Wildfires and Insurance Challenges
2025 has started with immense tragedy. California is currently grappling with the aftermath of devastating wildfires that have destroyed thousands of homes in the Los Angeles area. We are heartbroken for all those affected, including several people we know personally. As the fires continue to burn, homeowners affected by the fires are left uncertain about whether their insurance will cover the damage, and homeowners in other parts of the state are questioning whether their insurance coverage offers sufficient protection.
Before these fires even broke out, major insurers like State Farm and Allstate had already begun canceling home insurance policies in fire-prone areas in California. State Farm, California’s largest insurer, dropped around 1,600 policies in Pacific Palisades (where the first fire broke out) in 2024, leaving nearly 70% of its policies in the county non-renewed. State Farm stopped accepting new applications for coverage completely in 2023, citing increasing construction costs, statewide bureaucratic challenges, growing wildfire risks, and a difficult reinsurance market. With wildfires now destroying an average of 5,669 structures in the state annually, insurers are pulling back, with many convinced that they cannot make a sustainable profit in the state.
Home Insurance coverage has changed dramatically in recent years in California.
Homeowners and buyers need to be prepared and must navigate a more uncertain, expensive landscape. Partnering with an experienced real estate team backed by a reputable brokerage can offer a significant advantage. In today’s landscape, securing comprehensive home insurance to protect against all potential damages is no longer straightforward. Whether you are in Los Angeles or Los Altos, It requires careful planning and a strategic approach to ensure you’re adequately covered. While we are not insurance experts ourselves, we can help guide you in the right direction to make sure that you have the coverage that you need to keep you and your family safe and secure. Please take a moment this year to review your coverage and ensure that you are in the best position possible.
MARKET EXPECTATIONS
Real estate experts are optimistic about continued growth in 2025. With expectations of economic expansion, lower inflation, and falling interest rates, confidence is high among both industry professionals and everyday Americans. This should result in an overall increase in real estate sales.
“Directionally, I think there’s going to be roughly a 10% boost of existing-home sales in 2025 and 2026.” says National Association of REALTORS® Chief Economist Lawrence Yun.
Jeff Barnett, Managing Director of The Agency Los Gatos with over 35 years of experience in Silicon Valley real estate, agrees.
“Regarding what I see for 2025, I see a better year than 2024 for sales and inventory,” says Barnett.
Real estate sales increased in both volume and median price in Silicon Valley in 2024 year-over-year and industry experts expect this growth to continue in 2025.
2025 will bring a new president, along with policies that will inevitably impact the real estate market. Here’s an encouraging statistic: In the past 50+ years, the national median home sales price has never dropped in the year following a presidential election. This may stem from various factors, including the likelihood that people feel more settled after an election and ready to make significant life purchases.
“We’ve seen after presidential elections—and it doesn’t matter who wins—that there’s usually a slight boost in home sales,” Yun said. “It removes some uncertainty. Now you know it’s the policy [of President Trump], and you can make predictions about what will happen and make a decision based on that.”
Mortgage interest rates are expected to continue to fall after the Federal Reserve began cutting rates in September. This will hopefully bring additional buyers into the market and fuel continued growth.
"It seems that everyone is waiting to enter the market with lower rates, and there's a significant amount of pent-up demand. This phenomenon would cause home prices to be higher next year than they are today," said Mike Hardy, managing partner at Churchhill Mortgage at the end of 2024.
Finally, market expectations aren't just shaped by experts but also by the consumers who actually buy homes. There's promising information from this perspective as well.
According to a new report by the New York Federal Reserve, the share of households expecting their financial situation to be better a year from now jumped to 37.6% in November, the highest since February 2020, just before the COVID-19 pandemic’s effects hit.
Whether it’s economic data, post-election optimism, or the long-awaited feeling that the pandemic is finally behind us, there is a tangible sense of positivity in the air. Consumers have now accepted the new normal of post-pandemic life and are looking at the Silicon Valley real estate market with optimism.
INTEREST RATES
The narrative surrounding interest rates in 2024 has been a long and at times frustrating case of “will they or won’t they”, centered around ongoing speculation about whether the Federal Reserve would finally pivot to lowering rates.
From 2022 to 2023, the Fed raised the federal funds rate from near zero to 5.25%–5.5% to tackle inflation, which peaked at 9.1%. These rate hikes curbed inflation but made borrowing more expensive, reducing consumer purchasing power. Many homeowners became “locked in” to low mortgage rates, making sellers hesitant to list and reducing inventory.
When the Fed finally cut rates by a half-point in September, mortgage rates dipped slightly but remained frustratingly high, even after further cuts in November and December. Though down from their late-2023 peaks, rates remain elevated as we enter 2025, higher than in recent decades.
The Federal Reserve's policies significantly impact mortgage rates, but they do not set them.
As Los Altos realtors, we try to emphasize this point to all our clients,—while the Federal Reserve does play a significant role in shaping mortgage interest rates, it does not directly set them. Other factors, such as inflation, economic trends, politics, the bond market, and more influence mortgage rates.
For 2025, mortgage rate expectations are that interest rates will go down slightly. The Federal Reserve is expected to make a couple of more cuts in 2025, but not at the sped-up rate that defined the end of 2024.
"I expect mortgage rates to be on a slow grind downward in 2025, barring unexpected softness in the economy," says Charles Goodwin, vice president of sales at mortgage lender Kiave.
With the economy in flux and new presidential policies on the horizon, we can expect some volatility on the path to lower interest rates.
"I expect that we will see mortgage rates undulate slightly down throughout 2025," says Hardy. "Think of a kid on a down escalator with a yo-yo as a visual to understand the path of mortgage rates."
We anticipate mortgage rates will decline next year, likely settling in the mid-to-high 5% range to the low 6% range on average.
Managing Director of The Agency Los Altos & Woodside Quetzal Grimm shared with us his current perspective on interest rates and the overall state of the Silicon Valley real estate market.
“In Silicon Valley, home prices haven’t been largely affected by rising mortgage rates after the initial period of price stagnation from April 2022 to January 2023 and, in fact, have increased since then. Low, but slowly growing inventory and high buyer demand have more than offset the downward price pressure from higher mortgage rates,” says Grimm. “Wealth created in the stock market with local companies continues to provide substantial buying power throughout the Bay Area, particularly highlighted in Silicon Valley. Although there remains some uncertainty with the new administration and interest rates, I anticipate a more normal and balanced real market in 2025.”
DEMOGRAPHIC TRENDS
After three consecutive years of population decline, California experienced positive population growth in 2023. We won’t see official government figures until the spring, but it is believed that this trend continued in 2024. While much attention has been given to Californians relocating out of state, the influx of new residents—particularly international migrants—often goes underreported. California's robust economy continues to attract individuals seeking opportunities, making it the third most popular state for international homebuyers after Florida and Texas. According to the U.S. census, an estimated 42% of residents in Santa Clara County are now foreign-born, highlighting the state's appeal to global talent.
In addition to international migration, another notable trend is the return of former residents. Many who left California are coming back, drawn by its lifestyle, economic opportunities, proximity to family, and the easing of pandemic-era policies. Sometimes you just can't resist those Los Altos or Palo Alto neighborhoods! The tech industry, particularly AI-driven companies, has been a significant factor in attracting people back, with a surge in commercial real estate acquisitions in San Francisco, Silicon Valley, and the Bay Area. Many are now returning to California hoping to catch a financial windfall by riding the wave of this revolutionary technology.
Some Californians who left the area in the last few years are now moving back, many due to a desire to be closer to family and friends and some to be at the epicenter of the AI boom.
Meanwhile, the region's age demographics are shifting. The Bay Area's median age continues to rise, with the median age in both Santa Clara and San Mateo counties now around 40 years old. Many of the older homeowners who want to downsize are feeling constrained by higher mortgage rates and could be very motivated to sell if rates go down enough.
Lastly, another growing group to highlight includes those splitting time between California and other states or maintaining properties in Silicon Valley while exploring life elsewhere. This trend, amplified by the pandemic, has seen many Californians holding onto their homes as investments, renting them out, or keeping them as secondary residences. If the market heats up significantly, this group may be inclined to sell, adding new inventory to the market.
MANSION TAX COMING TO SILICON VALLEY?
Two years ago, Los Angeles voters approved Measure ULA, which raised taxes on the sale of multimillion-dollar properties to generate hundreds of millions annually for addressing the city’s housing crisis. The tax applies a 4% fee to property sales over $5.1 million and a 5.5% fee to those exceeding $10.3 million. The tax has now collected around half a billion dollars since its implementation in April of 2023.
The ambitious program has proven to be controversial, with many seeking legal pathways to invalidate it.
There are now some rumblings about similar policies coming to Silicon Valley. Much of this is linked to Measure E which passed in the City of San Jose in 2020. This sort of “Mini-Mansion Tax” began imposing an additional 0.75% tax on all real estate sales over $2 million, an additional 1% tax on sales over $5 million, and an additional 1.5% tax on all real estate sales over $10 million.
Discourse around "Mansion Taxes" often brings up imagery of enormous estates like the one above, but in places like Silicon Valley where the average home is around 2 million dollars, even modest homes can be affected.
In June of 2024, a San Jose Councilmember introduced a memo proposing to increase Measure E transfer taxes to be closer in terms of taxes in Los Angeles and San Francisco (where transfer taxes on properties also exist).
This proposal advocates for a 4% tax on properties over $5 million and a 5.5% tax on properties over 10 million.
The memo is expected to be explored in early 2025.
While additional support from local policymakers and ballot measures would likely be required to actually implement such taxes here in our backyards, these recent changes in other parts of our state do bring the possibility of increased real estate taxes here in Silicon Valley. As real estate agents in Los Altos, we are closely monitoring these developments. This could impact our clients not only in Los Altos Hills or Atherton, California, but potentially across the entire region.
OUR PREDICTION
2025 will be the year of the real new normal. Not the “pandemic new normal”, not the “post-pandemic malaise” but a new optimistic, realistic, and active real estate market. Will sales volume sky-rocket, no. Will prices double, no. But will both sales volume and average sales price go up? We are confident in saying yes. Buyers and sellers will negotiate with a common understanding of where the market was, where the market is, and where the market is going. We won’t see the 25+ offer situations of 2021-2022, but we also won’t see the overpriced 365+ days on-market homes that become common in 2023-2024. This is Silicon Valley, one of the most desirable places to be in the world. Buyers will know what a reasonable price to pay is and sellers will know what a fair price to accept is—and we as Los Altos realtors will guide them there!
Finally, Regional Manager of Northern California Jeff Samuels offered us his insight for 2025.
“While we never know for certain what is or is not ahead, the 2025 real estate market looks to offer us a return to more historic norms for both price appreciation and sales volume. In Silicon Valley in particular, gains in the stock market should offer more liquidity to buyers who will be well positioned to take advantage of a drop in interest rates we are seeing in the adjustable rate loan products, especially the 7-year adjustable rate mortgage. After a four-year pendulum swing based on the pandemic market, 2025 will most likely be much more akin to that of the pre-pandemic mode of the late 2010s,” says Samuels.
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Kiersten Ligeti | 650.766.8319 | LIC. #01298631
Patricia Karoubi | 650.868.4565 | LIC. #01396914
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