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San Jose Real Estate Market 2025: Trends, Forecasts & Tech-Driven Shifts

August 16, 2025
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San Jose Real Estate Market 2025: Trends, Forecasts & Tech-Driven Shifts
  • The median home price in San Jose reached about $1.5 million by mid-2025, up about 5% year over year.
  • Housing inventory rose roughly 20% from early 2024, but San Jose remained a seller’s market with tight listings.
  • Unemployment in Santa Clara County stood at approximately 3.9% in Q2 2025.
  • Mortgage rates hovered around 6.5–6.8% in 2025, contributing to a lock-in effect where homeowners stay with their low-rate loans.
  • San Jose’s median rent was about $2,927 per month in July 2025, with 1-bedroom apartments averaging about $3,265.
  • The rental vacancy rate hovered around 4–5%, with rents rising roughly 2–3% year over year and about 44% of San Jose households renting.
  • The office market faced high vacancies, with 2024 around 20% vacancy; by Q2 2025 office vacancy improved to about 17.4% and overall availability near 18.2%, with subleases like Zscaler’s 300,000+ sq ft deal.
  • Industrial and warehouse space remained tight, with vacancy about 5.8% in Q2 2025, and roughly 2–3 million square feet of modern logistics space under construction in the region.
  • Mid-2025 CEQA reforms SB 131 and AB 130 streamline environmental review for infill housing up to 20 acres and 85 feet tall, potentially halving approval times.
  • Google’s Downtown West, an 80-acre, $10+ billion plan for up to 4,000 homes plus offices and retail, was in limbo in 2025 as site work paused and plans were reevaluated.

San Jose’s real estate market in 2025 remains robust yet complex, shaped by Silicon Valley’s economic swings, high housing demand, and emerging post-pandemic trends. As one of the nation’s priciest markets, San Jose is experiencing modest growth in home prices, low inventory (despite slight improvements), and intense competition for both buyers and renters. Below we break down the key sectors – from residential and rentals to commercial spaces – and what experts predict in the coming years.

Key 2025 Market Stats (San Jose):

  • Median home price: ~$1.5 million (mid-2025), up about 5% year-over-year redfin.com. Homes sell in ~20 days on average, often with multiple offers.
  • Median monthly rent: ~$2,927 as of July 2025, up roughly 2–3% from last year apartmentlist.com. One-bedroom apartments average $3,265/month apartmentlist.com.
  • Housing supply: Inventory up ~20% from early 2024 levels apartmentlist.com sfgate.com, but still a seller’s market with limited listings.
  • Affordability: Extremely low. A median-income household would need a >$250,000 raise to afford a median-priced home in San Jose zillow.mediaroom.com.
  • Economy: Unemployment in Santa Clara County is ~3.9% (Q2 2025) kidder.com. Mortgage rates hover around 6.5–6.8% sfgate.com, far above pandemic lows, contributing to a “lock-in effect” where homeowners stay put to keep their low rates.

Residential Real Estate Trends in 2025

San Jose’s housing market remains highly competitive in 2025. The median sale price for homes is about $1.5 million, which is 238% higher than the U.S. average redfin.com. Prices have inched up around 3–5% from last year, a moderate rise compared to the double-digit surges of the pandemic boom. This growth is showing signs of leveling off due to higher interest rates and slightly improved supply. Zillow’s senior economist notes that rising inventory is keeping home prices in check; in fact, home values are projected to be essentially flat (−0.2%) in the San Jose metro area for 2025 sfgate.com. Still, demand outstrips supply, so the market favors sellers overall.

Inventory and Sales: The number of homes on the market has increased modestly. Industry observers report San Jose’s 2025 starting inventory was ~20% higher than 2024’s sfgate.com, partly as more owners list homes and new construction trickles in. Even so, inventory remains historically tight – many owners are reluctant to sell and lose their ultra-low mortgage rates (the “lock-in” effect), which limits turnover. Despite more listings, closed sales have actually surged (up 8–31% year-over-year across the region) and are forecasted to climb another ~15% in 2025 sfgate.com, indicating that buyer demand quickly absorbs the available homes. Homes still sell quickly – about 20 days on market on median, versus 15 days a year prior redfin.com redfin.com. An average listing receives 3–4 offers in San Jose, often selling above asking price in desirable neighborhoods.

Pricing and Competition: Home prices in San Jose appear to have plateaued at high levels. As of mid-2025, the median sale price is around $1.5M (up ~5% YoY) redfin.com, rebounding from a slight dip in 2023. Buyer competition remains “somewhat competitive” by Redfin’s index, with many homes still fetching 2–6% over list price in bidding wars redfin.com. The luxury segment is particularly strong – high-end properties are seeing multiple offers and continued appreciation, defying broader affordability concerns sfgate.com. Realtors note that entry-level homes (in the ~$1M range) attract fierce bidding from first-time buyers and investors alike, often selling well over list with all-cash offers not uncommon sanjosespotlight.com.

Affordability Challenges: San Jose consistently ranks as one of America’s least affordable housing markets. Stagnant wages relative to home values have pushed the dream of ownership out of reach for many residents. Zillow analysis highlights the gap: even with a hefty $330,000 down payment (20%), a median-income family in San Jose would need a $250K+ pay increase to comfortably afford a median-priced home zillow.mediaroom.com. By one estimate, only ~28% of households in the broader Bay Area can afford the median home (and an even smaller share in San Jose proper). High mortgage rates – around 6–7% for 30-year loans – exacerbate the issue by adding hundreds or thousands to monthly payments. These affordability pressures have chilled some buyer demand and redirected many would-be buyers into the rental market zillow.mediaroom.com.

Market outlook: Prices are expected to remain flat or gently rising in the near term. The California Association of Realtors (C.A.R.) forecasts a +4.6% increase in California home prices in 2025 after ~6.8% growth in 2024 sanjosespotlight.com – a more sustainable pace. San Jose’s appreciation may be a bit lower than the state average due to its already sky-high prices and sensitivity to tech economy fluctuations. Any dip in mortgage rates could unleash pent-up demand: local agents predict that if rates fall into the low 6% or 5% range, the market will “light up” with activity as more sellers and buyers jump in sanjosespotlight.com sanjosespotlight.com. For now, expect modest price gains and slightly better selection for buyers, but nothing that dramatically improves affordability. San Jose’s fundamental housing shortage and strong job market underlie a long-term upward pressure on home values.

Rental Market Developments

San Jose’s rental market in 2025 is intensely expensive but relatively stable in growth. The city’s median rent (all unit types) is about $2,900 per month apartmentlist.com – over 100% higher than the U.S. median rent, reflecting the region’s wealth and housing scarcity. Rents have continued to inch upward: median rent rose ~2–3% year-over-year in mid-2025 apartmentlist.com. By comparison, many major U.S. cities saw flat or declining rents over the past year, thanks to a surge of new apartment construction nationwide. In the Bay Area, San Jose’s rent growth (~2.8% YoY) has outpaced San Francisco’s (virtually 0%) sfgate.com, though both are a far cry from the double-digit rent hikes of the past.

High Rents and Demand: Average rents by bedroom size underscore how unaffordable San Jose is for renters. As of July 2025, a 1-bedroom apartment averages ~$2,934 (nearly 67% above the U.S. average) and 2-bedroom units around $3,506 apartmentlist.com apartmentlist.com. Trendy central neighborhoods command even more – e.g. Downtown San Jose 1-bedrooms often exceed $5,000/month in luxury buildings apartmentlist.com. Such prices mean a renter would need an annual income well into six figures to follow the standard “30% of income on rent” rule. Not surprisingly, a large share of local renters are dual-income tech professionals or families sharing housing. Overall, about 44% of San Jose households rent rather than own point2homes.com, and many of them stretch budgets to do so (the metro’s cost of living index is ~231, second only to San Francisco in the U.S. apartmentlist.com).

Despite sky-high rents, demand for rental units remains robust. The rental vacancy rate is only around 4–5% in San Jose point2homes.com, indicating most units are occupied. (For context, a 5% vacancy is considered a balanced market – San Jose is right on that tightrope.) Renters have shown some price sensitivity – the relentless climb of rents cooled during 2020–2022, and concessions or slight dips occurred in those years. But the return of offices, universities, and in-migration of workers in 2023–2024 brought the rental market back to growth. Many households priced out of buying a home have no choice but to keep renting, which supports demand.

New Supply and Vacancy: A notable factor tempering rent growth has been an apartment construction boom in the U.S. Sun Belt (cities like Austin and Raleigh) that created a glut of units nationally sfgate.com. While the Bay Area hasn’t built nearly enough housing to erase its shortage, San Jose has added some new apartments and seen inventory of rentals rise ~20% in certain suburban areas apartmentlist.com. This modest influx of supply is a relief valve on rents. The Bay Area’s multifamily construction is expected to slow after 2025, however, as projects finish and fewer new ones break ground sfgate.com. Zillow’s analysts predict that by late 2025, the rental market will tighten again – the recent wave of new units will “fizzle out,” meaning more competition per vacant unit going forward sfgate.com. In San Jose, where housing is perennially under-built, even a small dip in vacancy can turn into rent hikes.

Outlook for Renters: Rent increases in the next few years will likely stay in the low single digits annually (barring an economic downturn). Experts foresee continued low, steady rent growth in the Bay Area – perhaps on the order of 2–4% per year sfgate.com. This is good news for renters compared to the double-digit surges of the last decade, but rents aren’t expected to drop significantly either. Policy changes are on the horizon: California voters may see Proposition 33 in 2024, an initiative to expand rent control (after two prior attempts failed) sfgate.com. If it passes, cities like San Jose could adopt stronger rent caps on newer buildings, potentially limiting how fast rents can rise. San Jose already has local rent control for older apartments (capping annual increases around 5–8%), and an expansion could further protect tenants – or, critics say, discourage new development. Meanwhile, demand for single-family home rentals is rising as families seek more space; these homes now rent for ~41% more than five years ago (a growth outpacing apartments) zillow.mediaroom.com. Overall, the rental market will stay competitive – renters should budget carefully and expect to spend a large share of income on housing in Silicon Valley.

Commercial Real Estate Outlook

San Jose’s commercial real estate sector is a story of contrasts in 2025. The office market is grappling with high vacancies and the work-from-home paradigm shift, while industrial and warehouse spaces are near full capacity thanks to the Bay Area’s logistical needs. Retail properties are faring relatively well, buoyed by affluent consumers and a partial return to office that’s reviving foot traffic in some areas. Here’s a breakdown by sector:

Office Market: High Vacancies and a Slow Recovery

Office space in San Jose (and Silicon Valley at large) is abundant and under-utilized in 2025. The office vacancy rate soared above 20% in 2024, up from just 8.6% pre-pandemic patch.com. By the third quarter of 2024, 21.8% of office space sat vacant in Santa Clara and San Mateo counties (which include San Jose), more than double the pre-COVID rate patch.com. This glut has been driven by remote work and hybrid policies – employees are coming into offices infrequently, if at all. San Jose’s metro had only about a 40.7% return-to-office rate as of late 2024, one of the lowest in the nation patch.com. Companies have downsized footprints accordingly, leaving large blocks of space empty or on the sublease market.

However, 2025 shows early signs of stabilization. Some indicators: Silicon Valley’s office vacancy dipped slightly to ~17.4% by Q2 2025 (with overall availability ~18.2%) kidder.com. Leasing activity has picked up in the first half of 2025 – notable deals include tech firms like Zscaler subleasing 300,000+ sq. ft. in Santa Clara kidder.com. Landlords are cutting deals and offering incentives to fill space, and asking rents have flattened (around $4.07 per sq. ft. monthly, 0.2% lower than a year ago) kidder.com. Sales of office buildings are happening at deep discounts, attracting investors looking for bargains – the average sale price per sq. ft. ($360) is well below the 5-year norm, reflecting distressed values kidder.com.

“Flight to quality” is the mantra: tenants are consolidating into higher-end, amenity-rich buildings to entice workers to come in, while older or less ideally located offices struggle. For example, Google – after massive layoffs and cost cuts – put a large portion of its Redwood City campus up for lease and paused construction on future offices kidder.com. New developments have largely halted, though a paradox remains: about 9 million sq. ft. of commercial space was constructed in 2024, a post-pandemic high, even as vacancy hit records patch.com. This includes specialized R&D facilities and owner-occupied projects that don’t show up as leased space. Experts call it a “paradox of 2024” – a growing economy but less need for office space patch.com.

Looking ahead, most analysts expect the office market to remain soft through 2025. Companies are subleasing rather than expanding, and nearly $1 trillion in commercial real estate debt is coming due in 2025 kidder.com – raising the risk of defaults, especially in office assets with declining value. On the bright side, San Jose has avoided the worst-case scenario seen in San Francisco (where multiple downtown towers went into foreclosure). Fewer San Jose landlords have defaulted so far patch.com, partly because local offices are more spread out (e.g. many low-rise tech campuses) and not as dependent on a dense downtown core. Forecasters believe a “new normal” will take another year or two to shake out patch.com. As one local consultant put it, the goal is to “chip away [and] get the vacancy rate below 20%” to a more manageable level patch.com. If the tech sector reaccelerates or companies mandate more in-person work, the recovery could quicken – but for now, expect elevated office vacancy and plenty of space options for tenants in San Jose.

Industrial and Warehouse: Strong Demand, Tight Supply

In stark contrast to offices, industrial real estate in the San Jose area remains highly sought-after. The vacancy rate for industrial and warehouse space is extremely low – roughly 4% to 6% in 2024/2025 patch.com cbre.com. By Q2 2025, the overall Silicon Valley industrial vacancy was about 5.8% cushmanwakefield.com, which signifies a very tight market (especially considering that includes some new deliveries). Demand for logistics, manufacturing, and lab space is driven by e-commerce, semiconductor and hardware companies, and biotechs requiring facilities where work must be done on-site.

R&D labs and specialized facilities have seen somewhat higher vacancy (~11% in late 2024 for R&D labs) patch.com, but that’s partly due to new space coming online. In sectors like biotech and advanced manufacturing, occupancy remains robust – those firms can’t go fully remote. The Joint Venture Silicon Valley report noted lab and industrial space demand continued to grow in 2024 despite the office glut patch.com. Rents for industrial properties have been stable or rising modestly, as supply is limited by land constraints in the Bay Area. Developers added some industrial square footage in 2024, and about 2–3 million sq. ft. of modern logistics space is under construction around San Jose, often built to suit for specific users.

Outlook: The industrial sector is expected to stay strong. Even if the economy hits a soft patch, vacancies are so low that a slight rise wouldn’t tip the market into oversupply. E-commerce, data centers, and electric vehicle industries are expanding in Silicon Valley and will keep absorbing space. In fact, one of San Jose’s newly approved downtown projects includes an 11-story data center alongside housing (a unique mixed-use concept) localnewsmatters.org. Investors remain bullish on industrial properties for their stable cash flow. One caveat: community resistance to new warehouses (due to traffic or environmental concerns) can slow approvals. But with CEQA reforms (discussed below) and the region’s infrastructural needs, industrial development will likely get streamlined. Expect industrial vacancies to hover in the low-single digits and rent growth in the mid-single digits annually moving forward.

Retail Sector: Resilient High Streets and Shifting Patterns

Retail real estate in San Jose has proven surprisingly resilient through the pandemic aftermath. Thanks to the area’s high incomes and pent-up consumer spending, most shopping centers and storefronts have rebounded, even as remote work changed some habits. Retail vacancy hit a six-year low of ~4.7% in early 2025 in Silicon Valley assets.cushmanwakefield.com. Entering 2025, most submarkets had retail vacancies under 4% – essentially full occupancy – especially in thriving areas like Santana Row/Valley Fair, Palo Alto, and Cupertino marcusmillichap.com. The only pocket of elevated retail vacancy (around 5%) is in parts of South San Jose marcusmillichap.com, which likely reflects a few struggling older centers or big-box closures there.

Several factors have “propped up” retail real estate: tech salaries and wealth mean local households have spending power to support restaurants, boutiques, and services. Even during stretches of heavy remote work, high-income residents continued to shop locally, and many retail businesses adapted (offering delivery, curbside, etc.). Now, as more workers return to offices part-time, downtown and business-district eateries see improved foot traffic. Suburban retail anchored by grocery and essential services stayed strong throughout. Additionally, San Jose’s car-oriented layout meant that many retail centers have large footprints and parking, allowing for easier social distancing or pickup services during COVID.

By late 2024, retail leasing activity was picking up alongside the small boost in office occupancy marcusmillichap.com. Commercial brokers report that San Jose is the Bay Area’s strongest retail market, and it’s “getting stronger.” marcusmillichap.com High household incomes sustained retail spending even when offices were empty, and now any increase in office workers or population adds more fuel to demand marcusmillichap.com. Notably, several new retailers are expanding: Costco and a large Asian supermarket (T&T) are moving into San Jose locations in 2025 marcusmillichap.com. These new entrants are expected to turn last year’s slightly negative net absorption positive. Essentially, retail space that went vacant is being backfilled quickly by new stores and restaurants.

Rents for retail have remained relatively stable, with prime locations commanding top dollar (e.g. high $30s per sq. ft. annually triple-net assets.cushmanwakefield.com). Landlords are optimistic but realistic – they know e-commerce is still a threat, so experiential and food-based tenants are preferred to drive foot traffic. The region’s return-to-office trend (even if partial) is a boon for downtown retailers. Conversely, if remote work remains prevalent, some downtown retail could repurpose or face headwinds, but so far San Jose’s core hasn’t seen the widespread retail collapse that San Francisco’s downtown did.

Outlook: Retail vacancies should remain low (<5%) and could even tighten if the local economy stays strong. The biggest risk is economic downturn – consumer spending would falter if unemployment rises. For now, San Jose’s retail outlook is cautiously positive: affluent consumers, growing residential density (with new mixed-use developments), and improving office utilization all point to sustained demand for shops and restaurants. The city’s strategy of urban villages and walkable centers will continue to create opportunities for retail development. In summary, among commercial asset classes, retail is performing better than office and roughly on par with industrial in San Jose’s 2025 market.

Real Estate Investment Trends

Real estate investors eyeing San Jose face a high-cost, high-reward equation. The region’s sky-high property values mean rental yields (cap rates) are relatively low, but the prospects for long-term appreciation and rent growth remain strong. In 2025, investment activity has been somewhat restrained by interest rates and economic uncertainty, but there are clear trends and opportunities:

  • Residential Investment: Buying single-family homes or condos to rent out is challenging given $1M+ entry prices, but those who can afford it are seeing consistent rental demand. With many families unable to buy, single-family rentals are in high demand (as evidenced by fast rent growth in that segment zillow.mediaroom.com). Neighborhoods with good schools (Almaden Valley, Cambrian Park, West San Jose) or planned transit improvements (e.g. around the future BART stations in North San Jose) are particularly attractive for investors, as they promise stable or rising rents. Some investors are also leveraging California’s ADU laws – adding accessory dwelling units to single-family properties to create duplex/triplex income streams. Cap rates for residential rentals in San Jose often range in the low 3%–4% range, which is slim, but many investors bank on price appreciation and tech-driven population growth for returns.
  • “Hot” Neighborhoods: San Jose’s diverse districts offer different opportunities. Downtown San Jose is seen as a long-term bet – with Google’s proposed campus (now paused) and other public investments, downtown land and older buildings have drawn investors looking to redevelop or wait for an upswing. Areas like Japantown and Willow Glen hold their value due to unique cultural vibes and charm, attracting both homeowners and flippers who renovate historic homes. In terms of emerging potential, local experts often point to places like Berryessa/North San Jose (where the BART extension is underway) and Alum Rock/East Foothills (where prices are lower relative to the rest of the city, suggesting room for growth). According to one investment analysis, up-and-coming neighborhoods such as Communications Hill, North San Jose, and parts of East San Jose are primed for growth as the city encourages development there blockchangere.com firesidepropertymanagement.com. Investors are increasingly looking beyond the traditional upscale zip codes and into these “undervalued” areas for better initial yields.
  • Commercial Investment: Given the weakness in office, savvy investors are bargain-hunting. As noted, office buildings have sold at heavy discounts – some owner-users (companies buying their own buildings) and private equity funds have picked up office assets at prices 30–50% below peak. This strategy bets on a 5-10 year recovery horizon for office demand. Meanwhile, industrial properties remain a favorite of institutional investors; competition is fierce for any logistics facility that hits the market, and cap rates in industrial are in the 4% range due to the reliability of tenants. Retail centers in strong locations (especially grocery-anchored centers or those in affluent neighborhoods) are also trading actively, since they proved resilient through COVID. Overall, the Bay Area’s commercial real estate investment volume in 2025 is down from pre-pandemic, but San Jose is capturing a good share of what’s happening, as investors pivot from San Francisco’s troubled market to the South Bay’s relatively stable outlook.
  • Returns and Risks: Investors in San Jose are contending with higher financing costs – borrowing rates for mortgages or commercial loans are around 6–7%, which can exceed the property’s yield, creating negative leverage. This has thinned out speculative investors and flippers compared to a few years ago. Those remaining tend to be either long-term holders with cash (who are less rate-sensitive) or 1031 exchange buyers rolling over gains from sales elsewhere. The calculus many make is that San Jose’s tech-driven economy will keep real estate values trending upward over the long haul. Indeed, veteran local investors note that Silicon Valley real estate has outpaced much of the nation in appreciation, and they expect that to continue sanjosespotlight.com. There is always the risk of a tech downturn or policy changes (like stricter rent control or new taxes on investors) that could dampen returns. But as of 2025, investment in San Jose real estate is still seen as a solid play – it’s a bet on one of the most robust regional economies in the world.

In summary, investment trends show a flight to quality and opportunity: money is flowing into areas and property types with the best mix of current income and future upside (be it a new suburban rental development or a repositioned office/R&D campus). “Hot” neighborhoods for investors often align with where city development efforts are focused or where affordability relative to the rest of Silicon Valley suggests room for growth. While returns are not as heady as in cheaper Sun Belt markets, San Jose offers something many cities don’t: relative stability and proven long-term growth, making it a key target for real estate capital in California.

Development and Construction Pipeline

Real estate development in San Jose is at a crossroads in 2025. The city has ambitious plans for new housing and mixed-use communities, but economic challenges have slowed the pace of construction in the past year. Nonetheless, several significant projects are moving forward, and policy shifts aim to unlock faster development in the near future.

Housing Development: San Jose, like all California cities, is under pressure to add housing (with state mandates for tens of thousands of units by 2030). Approved projects are on the books, but groundbreaking has lagged. In fact, San Jose saw zero multifamily housing starts in 2024 – not a single new apartment or condo building broke ground that year localnewsmatters.org. This startling statistic reflects how rising construction costs, labor shortages, and high interest rates made many projects infeasible. Even though the city’s Planning Department has approved lots of units, they often end up “on the shelf” waiting for financing localnewsmatters.org.

To combat this, city leaders launched the Innovative Project Pathway Program in late 2023 localnewsmatters.org. This program incentivizes developers with “extraordinary benefit” projects – for example, those that include significant affordable housing or other public benefits – by overriding certain zoning standards, cutting construction taxes, and waiving some fees localnewsmatters.org. The goal is to fast-track projects in downtown and other priority areas. In April 2025, the first two projects under this program were approved: a Canadian developer Westbank got the green light for 1,492 residential units across two high-rise towers in Downtown San Jose, coupled with twin data centers on-site localnewsmatters.org localnewsmatters.org. The city waived some affordability fees and relaxed height limits to make these projects pencil out. Mayor Matt Mahan said San Jose must not let outdated zoning “get in the way of innovation that might pencil today” localnewsmatters.org, highlighting the city’s willingness to be flexible to spur development.

Beyond downtown, numerous other housing projects are in the pipeline. In North San Jose, construction is underway on a large mixed-use project on former agricultural land, which will bring several hundred apartments and retail space to the area sanjosespotlight.com. Developers like SummerHill Homes are building new multifamily complexes in previously commercial zones (e.g. a project at 210 Baypointe with over 200 units) sfyimby.com. Additionally, there’s a push for more modular housing and creative construction methods: a proposed modular apartment building on The Alameda would add 174 units on a small lot, showcasing an innovative approach to infill density sfyimby.com.

Downtown West and Big Tech Campuses: The elephant in the room is Google’s Downtown West project near Diridon Station – an 80-acre, $10+ billion plan for a new urban mixed-use neighborhood (up to 4,000 homes, offices, retail, parks). San Jose approved this project in 2021 with much fanfare realestate.withgoogle.com techxplore.com. However, as of 2025, Downtown West is in limbo. In early 2023 Google halted site work and in 2025 there are reports that Google canceled its development partnership and is re-evaluating its real estate plans techxplore.com techxplore.com. The company’s broader retreat from expanding offices (due to remote work and cost cuts) threatens the housing it promised – across Silicon Valley, Google pledged land for 15,000 homes (in San Jose, Mountain View, Sunnyvale), but six years on, none of those homes have been built techxplore.com. Google even signaled it might sell off pieces of its land holdings (e.g. a big Mountain View tract slated for 1,900 homes) techxplore.com. If Google does pull back, the Downtown West vision may be delayed or downsized significantly. City officials remain hopeful the project will resume, but it might require new partners or a phased approach. The uncertainty around this mega-project is a wild card for San Jose’s development pipeline – it could deliver a huge influx of housing and commercial space, or remain a dormant plan for years.

Pipeline Challenges: San Jose’s experience reflects a wider trend: many approved high-density projects are being “value engineered” or replaced with lower-density plans due to cost challenges. Developers find that in 2025’s conditions, a luxury high-rise might not “pencil,” whereas townhomes or smaller scale projects might. Indeed, across San Jose, developers switching from apartments/condos to townhomes have erased an estimated 4,177 housing units from the city’s pipeline – those units were approved but won’t be built as originally planned techxplore.com. This is a significant setback for housing targets. It underscores the need for policy interventions and cost reductions to get big projects moving.

On the positive side, California’s regulatory environment is shifting to favor development. In June 2025, the state enacted CEQA reform (Senate Bill 131 and Assembly Bill 130) to streamline environmental review sanjosespotlight.com. Projects that are infill (under 20 acres, under 85 feet tall, and within zoning) can now bypass certain CEQA requirements sanjosespotlight.com. This means many mid-sized housing projects in San Jose will no longer face years of delay from lawsuits or onerous environmental reports. San Jose’s mayor celebrated these reforms, noting CEQA was often “weaponized” to stall housing, and that now projects could be approved in half the time in some cases sanjosespotlight.com. Additionally, existing laws like SB 35 (which expedites qualifying affordable housing) and AB 2011 (which allows housing on commercial sites by-right) are starting to be used in the Bay Area.

Looking forward: The development pipeline is expected to ramp up over the next couple of years thanks to these reforms and local initiatives. San Jose has identified dozens of opportunity sites and has a proactive stance to meet its state housing goal (over 60,000 units for 2023-2031). We may see more creative projects like office-to-residential conversions (if offices remain underused) and public-private partnerships. Infrastructure projects like the BART Silicon Valley extension (bringing BART trains into downtown San Jose by ~2030) and Caltrain electrification will also spur transit-oriented development along those corridors. In summary, 2025 is a transitional year: after a slow 2024, construction is poised to rebound, but it will require navigating high costs. With new laws cutting red tape and city incentives in place, San Jose hopes to translate its many planned projects into shovels in the ground soon.

Policy and Regulatory Changes Affecting the Market

A number of policy and regulatory developments in 2024–2025 are influencing San Jose’s real estate landscape, aiming to address the housing crunch and protect residents, while also responding to economic shifts. Here are the key changes:

  • CEQA Streamlining (2025): The California Environmental Quality Act (CEQA) has long been cited as a cause of development delays. In mid-2025, California enacted reforms to CEQA via SB 131 and AB 130, which significantly cut back environmental review requirements for many projects sanjosespotlight.com. Notably, infill housing projects on vacant urban land (up to 20 acres, under 85 ft height) no longer require full environmental impact reports if they meet existing zoning sanjosespotlight.com. This is a big win for cities like San Jose: it means fewer lawsuits and faster approvals for mid-rise apartment buildings and other urban developments. City officials say CEQA lawsuits had delayed some projects by up to two years sanjosespotlight.com – so this reform could potentially halve approval times sanjosespotlight.com. San Jose’s Mayor Matt Mahan was an outspoken supporter, arguing CEQA had been abused to block needed housing sanjosespotlight.com. With the reforms, the city is pairing state changes with local incentives (like fee waivers via the Innovative Pathway) to expedite housing production sanjosespotlight.com. While environmental groups worry about reduced public input, the general expectation is that San Jose will see an acceleration in project starts as a result of the streamlined rules.
  • State Housing Mandates and Zoning: California has put in place several laws to override restrictive local zoning. SB 9 (in effect 2022) allows homeowners to split single-family lots or add duplex units by-right. In San Jose, uptake of SB 9 has been slow so far (due to high costs of building ADUs/duplexes), but over time it could gently increase density in residential neighborhoods. SB 10 (2022) lets cities adopt an ordinance for up to 10 units on transit-proximate parcels without CEQA – San Jose hasn’t fully leveraged this yet, but could in the future for transit corridors. Additionally, AB 2011 (2022) streamlines housing on commercial (e.g. strip mall) sites; a couple of San Jose projects are exploring this, which could turn underused retail parcels into apartment complexes with ministerial (fast-track) approval. San Jose’s own General Plan encourages growth via “Urban Villages” – essentially pre-planned higher-density pockets – and in 2025 the city is updating its Housing Element to show the state how it will accommodate ~62,000 new homes by 2031. This could involve rezoning some industrial or low-density areas to residential, and encouraging mixed-use near transit.
  • Rent Control and Tenant Protections: San Jose has a local rent stabilization ordinance covering apartments built before 1979, capping annual rent increases (around 5% maximum, tied to inflation) and providing eviction protections. While this remains in place, tenant advocates argue it’s not enough since it excludes newer buildings. At the state level, activists are pushing Prop 33 (2024) to allow expansion of rent control (essentially to repeal the Costa-Hawkins Act restrictions) sfgate.com. If voters approve it, San Jose could choose to extend rent control to newer units or even single-family rentals, which would significantly affect landlords and investors. Separately, AB 1482 (state rent cap law) already limits rent hikes on most California rentals to ~10% a year – but San Jose’s local cap is stricter for older units. During the pandemic, both state and local governments enacted eviction moratoriums and rent relief programs; most of those have expired, but in 2025 there’s discussion in the city about establishing a permanent emergency rental assistance fund for tenants facing sudden hardship. Affordable housing requirements also shape development – San Jose continues to require market-rate projects to include a percentage of below-market units or pay in-lieu fees. There’s talk of updating these inclusionary housing policies to balance incentivizing development with producing affordable units.
  • Taxes and Fees: In late 2024, San Jose voters approved (or considered) measures affecting real estate economics. One example is a commercial linkage fee on new office development that funds affordable housing – San Jose has such a fee, and though office projects are slow, any revival would bring in fees for housing. There was also discussion of a vacancy tax on empty storefronts to discourage long-term retail vacancies downtown (following SF’s lead), but it’s not yet implemented. On the flip side, the city has reduced some fees: the Innovative Pathway Program mentioned earlier waives certain construction taxes and park fees for qualifying downtown housing projects localnewsmatters.org. This reduction in costs is a deliberate policy move to make development financially viable in a high-cost environment.
  • Economic and Monetary Policy: Indirectly, decisions by the Federal Reserve and broader economic policy changes (like any new federal infrastructure spending or tax law changes) also affect San Jose’s market. For instance, the Fed’s interest rate hikes in 2022–23 had huge impacts on mortgage rates and construction loan costs, cooling the market. Entering 2025, there’s uncertainty: the Fed was expected to cut rates, but the late-2024 political climate (including a new presidential administration and talk of tariffs potentially rekindling inflation) has cast doubt on rapid rate cuts sfgate.com. Housing economists widely expect mortgage rates to gradually moderate to around 6% or just below by end of 2025 sanjosespotlight.com, but policy missteps could change that. San Jose’s market is highly sensitive to these macro factors due to its extreme prices – even small rate drops can unlock significant purchasing power (and thus demand). Locally, government stimulus or tech industry tax incentives can also indirectly boost real estate by spurring job growth.

In summary, 2025’s policy landscape is trending toward pro-housing development (through streamlined approvals and incentives) and continued tenant protections (with potential for expanded rent control). San Jose is trying to balance these to solve its housing shortage without driving away investment. The effectiveness of these policies will become clearer in the next few years: if they succeed, San Jose could see a much-needed uptick in housing production and a gentle easing of housing costs; if not, the city may continue to struggle with the status quo of high prices and inadequate supply.

Economic Factors Influencing the Market

San Jose’s real estate does not exist in a vacuum – it’s heavily influenced by broader economic forces, from the state of the tech industry to interest rates and migration patterns. As of 2025, several economic factors are particularly noteworthy:

Tech Sector Health: San Jose sits at the heart of Silicon Valley, so the fortunes of tech companies greatly affect housing and commercial real estate demand. The past couple of years brought a tech slowdown and layoffs (especially in late 2022 and 2023, companies like Meta, Google, etc. cut staff). This cooled the housing market briefly in 2023 as some tech workers left the region or became more cautious. By 2025, the tech sector is showing mixed signals. Employment data for the San Jose-Sunnyvale-Santa Clara metro indicates the information sector jobs were down ~0.8% year-over-year kidder.com in early 2025 – so tech employment has not been rapidly expanding, but the decline has stabilized. The professional/business services sector (which includes many tech-related roles) was also down ~1.8% YoY kidder.com. Despite these slips, unemployment in Santa Clara County remains very low (around 3.9%) kidder.com, meaning the broader labor market is still tight. Many laid-off tech workers found new jobs or started ventures, and non-tech industries (like healthcare, advanced manufacturing) have grown.

For real estate, a stable but slower-growing tech sector means no huge influx of new buyers/renters, but also no mass exodus. San Jose did see some net out-migration during the pandemic (as some workers moved to cheaper areas with remote work), but that trend moderated by 2023. In fact, as some employers call people back to the office at least a few days a week, a number of those who left are returning or at least maintaining a foothold in the Bay Area. Venture capital and startup formation picked up in early 2025 compared to the doldrums of 2022, which could signal future job growth. Additionally, the AI boom (with companies focusing on artificial intelligence) is centered in Silicon Valley and could drive the next wave of office and housing demand. If companies like Nvidia, Google (with its AI initiatives), and a host of AI startups keep hiring, that will inject new housing demand in the region. Overall, tech is the fundamental driver: when it sneezes, housing catches a cold, and when it booms, housing goes crazy. Right now we’re in a middle ground – cautiously optimistic that the worst of the tech downturn is over, but awaiting a clear next boom.

Interest Rates and Financing: Probably the single biggest factor cooling the real estate market in 2025 compared to the frenzy of 2021 is the high interest rate environment. Mortgage rates that were 3% in 2021 shot up above 7% in 2022, and as of mid-2025 they’re in the 6.5–7% range for 30-year fixed loans sfgate.com. This has huge effects: it increases monthly mortgage payments by hundreds or thousands of dollars, reducing what buyers can afford. A rule of thumb: a 1% rise in mortgage rates cuts a buyer’s purchasing power by ~10%. Thus, 2025 buyers find they qualify for much less house than they would have a few years ago. High rates also create the “lock-in” effect for sellers – roughly 84% of homeowners have mortgages under 6% in California sanjosespotlight.com, so moving and taking a new 7% loan feels like a financial loss. This has kept many homes off the market, contributing to low inventory.

Looking forward, economists widely expect rates to gradually fall over the next 12-24 months. The National Association of Realtors forecasts rates hovering around 6% in 2025 and possibly dipping below that by year-end sanjosespotlight.com. C.A.R.’s chief economist Jordan Levine is bullish, suggesting rates could hit 5.9% by late 2025 sanjosespotlight.com. If inflation continues to ease and the Federal Reserve starts cutting the federal funds rate, mortgage rates will follow. Every tick downward in rates is likely to pull more buyers into the market (and encourage some owners to trade up or move, increasing inventory). For example, when rates briefly fell into the low 6’s in late 2024, agents reported an immediate spike in buyer activity sfgate.com. We can expect these “mini-sprints” of sales whenever rates dip in 2025 sfgate.com. Refinancing waves are also anticipated if rates drop below 5.5% – that could free up more spending power for homeowners (or allow investors to refinance and maybe reinvest in property). Conversely, if inflation flares up and rates stay high or even rise, the housing market could stagnate or soften, as affordability would worsen. It’s worth noting that even a 5-6% mortgage rate is historically normal (the 50-year U.S. average is ~8% sanjosespotlight.com), but after a decade of ultra-low rates, it feels high to current participants.

Local Economy and Employment: Aside from tech, San Jose’s economy benefits from a diversity of employers – universities (San Jose State), healthcare (hospitals expanding), defense tech (Lockheed, etc.), and a strong small business base. Job growth in non-tech sectors has helped keep the region’s employment strong. The median household income in San Jose is around $117,000, one of the highest in the nation, and it’s growing modestly each year. Yet, ironically, that’s not nearly enough to comfortably buy a house here (as noted in affordability stats). The wealth generated by stock compensation and startup equity is a major factor that injects liquidity into the housing market – e.g., when a company IPOs or gets acquired, newly wealthy employees often purchase homes or upgrade. The IPO market was slow in 2022–24, but is poised to reopen; a few anticipated IPOs (like Stripe or Instacart, if they hadn’t by 2025) could mint new millionaires and lead to high-end home purchases. Additionally, international immigration (particularly of tech talent) is resuming, which supports both rental and home-buying demand, especially in communities with large Indian and Chinese tech professional populations in San Jose.

On the flip side, cost of living and quality of life factors continue to influence migration. The Bay Area has seen some net domestic out-migration – people moving to cheaper states – but much of that was offset by foreign immigration and births. San Jose’s population dipped slightly during the pandemic but is roughly stable now. If the “Zoom-town” remote work trend persists, some workers might choose to live in scenic or affordable areas (Lake Tahoe, Austin, etc.) while keeping Silicon Valley jobs, which could dampen local housing demand. But many companies are finding productivity and training new staff works better in person, so a partial return may be structural.

Costs and Construction: Another economic factor is the cost of building – materials and labor. Construction costs in the Bay Area are among the highest in the world. In 2024–25, inflation in materials like lumber and steel moderated after spiking earlier, but labor costs remain high due to worker shortages. Skilled construction labor is in short supply, driving wages up and timelines out. This directly affects how much new housing can be built and at what price. As noted earlier, developers pivoting to lower-cost projects is one response techxplore.com. The rising cost of capital (interest on development loans) also is a factor – many projects that were marginally profitable became unprofitable when interest doubled. If the Fed eases and financing gets cheaper, some shelved projects might revive.

Macro Trends: At a high level, San Jose’s real estate is anchored by a few macro truths – the desirability of living in Silicon Valley (for career opportunities), the scarcity of land in a built-out region, and California’s regulatory complexities. These create a tendency for prices to rise over the long term faster than national averages. Economic shocks can cause short-term corrections (as seen in early 2020 or 2008), but historically the area recovers strongly. For example, during the early pandemic, some predicted a mass exodus from cities; indeed, some residents moved to exurbs or out-of-state, but by 2025 many urban markets rebounded and San Jose’s home prices surpassed their pre-pandemic peak. The market’s trajectory will continue to follow the boom-bust cycles of the tech economy, smoothed a bit by limited housing supply.

In conclusion, the economic backdrop for San Jose real estate in 2025 is one of cautious optimism. The tech industry’s performance and the direction of interest rates are the two key variables to watch. A thriving tech sector and falling rates could kick the market into high gear again (with more sales and upward price pressure), whereas any recession or rate spike would pose a headwind. For now, the local economy is growing modestly, unemployment is low, and incomes are high – ingredients that support housing demand even in the face of affordability challenges. This dynamic tension between high demand/wealth and high costs defines San Jose’s market, and it will continue to do so in the coming years.

Comparative Insights: San Jose vs. Nearby Markets

San Jose’s real estate trends both reflect and diverge from those in neighboring Bay Area cities like San Francisco, Oakland, and the Silicon Valley suburbs. Buyers, renters, and investors often compare across these markets. Here’s how San Jose stacks up:

  • San Jose vs. San Francisco: Both cities are major Bay Area job centers with very expensive housing, but San Francisco has seen a softer market recently. Zillow forecasts slight price declines for SF’s housing in 2025 (~–1.8%), whereas San Jose is essentially flat to a slight uptick (–0.2% to +0% range) sfgate.com. San Francisco’s condo market in particular struggled with a glut of units and waning demand during the pandemic, whereas San Jose (which has more single-family homes) held value better. Affordability is equally daunting in both – median prices in SF (~$1.3–1.4M) are similar to San Jose’s, and both require high incomes. However, SF was hit harder by remote work. Its downtown office vacancy is much higher than San Jose’s, leading to empty condos/apartments in some areas and a population dip. San Jose, being more suburban in layout, didn’t experience as severe an urban exodus. Rental trends also diverged: SF rents actually dropped or stayed flat in 2024, while San Jose rents rose ~2–3% sfgate.com. That suggests a slight demand shift from SF to Silicon Valley. Culturally, SF remains a draw for some (city living, amenities), but crime and public safety concerns there have pushed some residents to consider places like San Jose. Luxury home markets in both cities are strong – SF’s high-end (e.g., Pacific Heights mansions) and San Jose’s luxury pockets (Silver Creek estates, etc.) are selling well to affluent buyers despite overall conditions sfgate.com. In summary, San Jose’s market in 2025 is more stable, while San Francisco’s is more volatile and in recovery mode. Many see San Jose as having upside (especially if downtown revitalizes), whereas SF is rebuilding trust and occupancy.
  • San Jose vs. Oakland/East Bay: The East Bay offers a more affordable alternative to Santa Clara County. Oakland’s median home price (mid-2025) is around $759,000 – roughly half of San Jose’s – and Oakland saw prices decline ~13% year-over-year redfin.com. In fact, Oakland’s housing market cooled significantly in 2024, with higher inventory and longer time on market (29 days vs 20 in SJ) redfin.com redfin.com. This partly reflects more out-migration from urban Oakland and a larger supply relative to demand. That said, Oakland’s absolute prices are lower, so it’s attracting some buyers who can’t afford the South Bay. Neighborhoods in the East Bay like Fremont, which is closer to Silicon Valley jobs, have higher prices (often ~$1.2M median) but still generally less than San Jose for comparable homes. Commute considerations play a role: when gas prices are high or traffic is bad, some who moved to East Bay might rethink and try to get closer to work in San Jose, boosting demand in the South Bay. Also, crime and school quality differences influence choice: San Jose’s suburbs are perceived as having better schools and safety than Oakland, which keeps Silicon Valley families from relocating en masse to the East Bay despite cheaper housing. On the rental side, Oakland rents actually fell ~6% in 2024 (e.g., 1-bed rents ~$1,800, much lower than San Jose) reddit.com. This indicates softer demand in Oakland and perhaps that remote-capable workers who left SF didn’t all flock to Oakland as once predicted – some left the region entirely. In contrast, San Jose’s population and housing demand are more tied to its own employment base (tech jobs that largely aren’t relocating away). Ultimately, San Jose is more expensive but stable, while Oakland is cheaper but saw a bigger correction. For investors, East Bay properties might offer better rental yields, but San Jose offers more assurance of long-term appreciation due to the concentration of high-paying jobs.
  • Silicon Valley Suburbs (Palo Alto, Cupertino, etc.): The suburban cities north and west of San Jose (Santa Clara, Sunnyvale, Mountain View, Cupertino, Palo Alto) are in the same Santa Clara County market but have their own nuances. Generally, these places are even more expensive than San Jose on a per-square-foot basis, thanks to top schools or proximity to HQs (e.g., Apple in Cupertino, Stanford in Palo Alto). For instance, Palo Alto’s median home price is well over $3 million, more than double San Jose’s. These suburbs have very limited inventory at any given time – people tend to hold onto homes because of great public schools and community prestige. In 2025, these markets remain ultra-competitive: a starter home in Mountain View or Cupertino often gets dozens of offers. San Jose competes with these areas by sheer size and diversity – there are affordable pockets in San Jose that undercut, say, Sunnyvale’s prices (e.g., East San Jose). But for those who prioritize schools, Cupertino or Palo Alto school districts are a big draw, keeping demand high there no matter what the broader market is doing. One comparative insight: while San Jose’s price growth slowed to ~5% YoY redfin.com, some Silicon Valley enclaves still saw higher jumps due to low supply (for example, Los Altos was reportedly up ~10% YoY in early 2025). So the micro-markets can outperform. On the flip side, San Francisco’s far suburbs (e.g., Tracy, Gilroy) saw an influx of remote workers during the pandemic, with big price jumps, but some of that is unwinding as commute realities return – those fringe areas might stagnate or drop a bit as people come back closer to jobs. San Jose stands in the middle: more urban and populous than the small suburbs, but more affordable (relatively speaking) than the elite towns. It also has more room to grow (especially vertically downtown or via infill), whereas suburbs like Palo Alto are built-out and staunchly limit growth. This means San Jose could add supply and potentially moderate its prices in the future more than those fixed-supply towns.

Overall, the Bay Area is a patchwork of micro-markets. San Jose in 2025 is performing better than San Francisco in many respects (less price decline, steadier demand) and showing more price resilience than the East Bay. It’s still cheaper than the ultra-rich enclaves but shares the challenge of low inventory. For a buyer or investor: San Jose offers a mix of urban and suburban living with high price tags, but if you want “cheaper” you’d look to the East Bay; if you want top-tier schools or status, you might stretch to Palo Alto or Los Gatos. Many people are making these trade-off decisions, which is why we see, for example, families leaving SF apartments to buy in San Jose, or tech workers skipping San Jose to buy a bigger house in Walnut Creek (East Bay) for the same price. These flows will continue, but San Jose’s central location in Silicon Valley gives it an enduring advantage – a huge job base nearby means there will almost always be demand to live there.

Projections and Forecasts for the Coming Years

Looking beyond 2025, experts anticipate that San Jose’s real estate market will experience moderate growth and gradual change rather than extreme swings. Here’s a synthesis of forecasts and opinions for the next several years:

  • Home Price Outlook: Virtually all major forecasters see continued price appreciation in San Jose, but at a slower, more “normal” pace than the frenzy of the 2010s. The California Association of Realtors projects the California median home price to rise ~4–5% in 2025 sanjosespotlight.com, and similar single-digit gains in 2026. For San Jose specifically, local realtors expect Silicon Valley home values to still “outpace much of the nation” in appreciation sanjosespotlight.com, given the region’s economic strength. A real estate investment site forecast San Jose prices +3% in 2025 and +4% in 2026 noradarealestate.com – basically keeping up with inflation. No credible source is predicting an outright crash or major drop in values barring a huge external shock. One reason: even if demand softens, limited supply provides a floor under prices. That said, if mortgage rates stay high or a recession hits, prices might plateau for a longer period. Zillow’s model, for example, predicted a very slight decline in 2024 followed by flattening in 2025 in the Bay Area sfgate.com. But by 2026–2027, if rates are lower, most expect prices will be climbing again a few percent a year as the market fully adjusts to post-pandemic conditions.
  • Sales and Inventory: National Association of Realtors’ chief economist Lawrence Yun noted that post-election years often see a boost in home sales sanjosespotlight.com. Indeed, he’s predicting U.S. home sales volume to jump 9% in 2025 sanjosespotlight.com as mortgage rates ease and more listings hit the market. Locally, we might see a similar bounce: already Santa Clara County saw an end-of-2024 surge in buyer activity sanjosespotlight.com. More homeowners may decide to sell in 2025–2026 as they get comfortable with the idea of trading a low old rate for a new home (especially if they have equity to offset the cost). Inventory is still expected to remain relatively tight, however – no one foresees a flood of new listings enough to be a buyer’s market. One positive sign: the share of mortgages with <4% rates will gradually decrease over time (people refinance, move, etc.), loosening the lock-in effect. Realtor.com data showed the percentage of mortgages under 6% fell from 89% to 84% in one year sanjosespotlight.com, which means some turnover is happening. By 2026–2027, perhaps rates normalize in the 5% range, and housing turnover picks up to more typical levels. New home construction will also add to inventory, though likely modestly. California’s push to build could yield results by 2026+ with thousands of units under construction in San Jose’s North First Street area, downtown, and elsewhere finally completing (if financing stabilizes). Overall, expect slightly improved inventory in coming years but still below what a balanced market would be.
  • Rents and Rental Market: Senior economists like Chris Salviati of Apartment List foresee “low, single-digit rent growth” continuing in the Bay Area in the near term sfgate.com. For 2025, that likely means rent increases around 2–4%, similar to 2024. As the large pipeline of new apartments nationally winds down by late 2025, competition for rentals could intensify in 2026. Zillow’s Orphe Divounguy predicts tighter rental markets by second half of 2025 once the construction boom fizzles, potentially giving landlords more pricing power sfgate.com. In San Jose, rents might accelerate a bit if population grows and house purchases remain unaffordable. However, any expansion of rent control or new supply could counteract that. Many experts see the renter nation trend persisting – if first-time buyers remain priced out, they continue renting, which keeps demand high. By 2030, San Jose’s rents will likely be even higher than today (barring an economic downturn), though perhaps growth will be incremental year by year.
  • Commercial Real Estate: Office market forecasts are cautious. Most commercial brokers think it will be 2025–2026 before office vacancy noticeably declines. Companies are still evaluating their space needs; the consensus is that the hybrid work model is here to stay, so overall demand for office space will be structurally lower than 2019. Some forecasts suggest the Bay Area office vacancy could peak around 2024–25 and then slowly recover. JLL and other firms expect office vacancies to improve by a few percentage points by 2026, but not return to pre-pandemic normals for many years (if ever). Conversely, industrial outlook is strong – Cushman & Wakefield’s market beat expects industrial vacancies to remain under 6% and rents to grow in 2025 as supply is absorbed cushmanwakefield.com. Retail is projected to stay relatively steady; some new retail construction will come online in mixed-use projects, but retail vacancy might hover in the 4-5% range through 2025. If a recession hits, retail could soften, but absent that, it’s stable.
  • Economic Wildcards: Interest rates are the biggest wildcard. If inflation falls faster than expected, the Fed could cut aggressively and mortgages might drop into the low-5% or even high-4% range by 2026. That would likely trigger a surge in buying activity and price growth – potentially moving back to a seller’s market frenzy. Some optimistic scenarios have housing reaccelerating in late 2025 under that condition. On the other hand, if inflation is sticky or the economy overheats, rates might stay high longer, keeping the market in a slower gear. Macro recessions are another wildcard; some economists worry about a mild recession in late 2024 or 2025. Historically, recessions can cool housing (lower sales, slight price dips), but given the supply shortage, any price declines in San Jose might be minimal and short-lived.
  • Expert Opinions: Local real estate experts often emphasize the long game. “Buyers should buy when they find a home that fits their needs,” advises the 2025 Santa Clara Realtors Association president, rather than trying to time the market sanjosespotlight.com. The logic: even if rates are high now, you can refinance later, but you can’t rewind and buy at yesterday’s prices – and in Silicon Valley, yesterday’s prices tend to be lower than tomorrow’s. Many expect that once rates dip below 6%, a lot of pent-up move-up buying will occur (homeowners trading up to bigger homes, etc.), which could increase inventory of starter homes but also increase demand for mid-range homes simultaneously sanjosespotlight.com. The consensus from Realtor surveys is that 2025 will be busier than 2024, and 2026 might return to a more familiar rhythm of the market with seasonal patterns, etc., assuming no major shocks.

In summary, the forecast for San Jose real estate is “cautiously optimistic.” We’re likely looking at stable or gently rising home prices, slowly growing inventory and sales volume, rents continuing to climb modestly, and a commercial sector finding its footing by 2026. San Jose’s market fundamentals – strong jobs, desirable location, limited land – suggest it will remain robust. The era of runaway price growth may be over (for now), but so too is any serious threat of a crash given the housing undersupply. Most experts anticipate a balanced, sustainable growth path for the next few years. As one housing economist put it, the Bay Area in 2025–2027 will likely see “steady growth, rising opportunities and ongoing adjustments to new trends,” rather than roller-coaster changes sfgate.com. For buyers and sellers, that means less frenzy and more predictability – and for policymakers, a continued imperative to build more housing to meet the region’s future needs.

Sources:

San Jose Housing Market Forecast 2023
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Roman Bednarski

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