Housing in America’s most expensive region is going to get evenpricier.

For all the talk of the U.S. tax overhaul hitting wealthyblue-state real estate, the San Francisco Bay area is set for morehome-price gains. Its technology-fueled economy and persistent housing shortage are sending valuesever higher -- and that may get even more pronounced as tech sharesales mint millionaires in San Francisco and Silicon Valley.

“The scale of the wealth created here and the scale of thetechnology sector is going to outweigh the effect of the tax plan,”said Patrick Carlisle, chief market analyst with Paragon RealEstate Group in San Francisco. “The Bay Area is unique because wehave companies that didn’t exist five years ago and that are nowthe biggest the world. There’s no place on Earth that has a similardynamic.”

Even after a years-long boom that has already priced out manyresidents, the San Jose metropolitan area is expected to be thehottest U.S. housing market in 2018, according to a report thismonth by Zillow that factors in home values, rents and jobs. SanFrancisco ranks as No. 5.

The areas led Realtor.com’s list of the top U.S. markets inJanuary, based on listing views and the length of time homes werefor sale.

The San Jose region -- which includes Silicon Valley towns suchas Palo Alto and Cupertino -- saw the median home value soar 21percent last year to $1.17 million, while inventory dropped 41percent to “crisis levels,” according to Zillow. In areas fromOakland to Marin County, the story is the same: too much demand andtoo little supply.

Share Sales

Home prices will keep rising as more startups go public or sellshares privately, generating cash for tech investors and workers,according to Carlisle. Dropbox Inc., the San Francisco-basedfile-sharing company valued at $10 billion, has filedconfidentially for an initial public offering and aims to list inthe first half of the year, according to people familiar with thematter. Investors led by SoftBank Group Corp. this month completedan $8 billion purchase of stock from Uber Technologies Inc.shareholders, bringing a flush of money to early investors in themassive startup. The Japanese conglomerate, meanwhile, is hungryfor more deals.

In San Francisco, low unemployment, at 2.2%, and the expansionof large employers such as Dropbox, Facebook Inc. and Google islikely to ensure demand for housing will continue outstrip supply.The median house price in the city soared 11% to a record $1.5million in the fourth quarter, while the average time it took tosell fell to two weeks from 22 days a year earlier, according to aParagon report.

The rapid speed of transactions came as a surprise to TaniaFowler, who in September sold the Edwardian three-story house shegrew up in. The Inner Sunset home, which sold for $200,000 abovethe asking price in an all-cash deal, was on the market for twoweeks.

“From the time we accepted the offer to close of escrow wasseven days,” Fowler said. “I used to sell real estate in theSacramento area and had seen 20-day COEs at the height of themarket bubble, but never seven days.”

At the high end of the market, with prices above $3.5 million,there’s already preparation for IPOs, said Gregg Lynn, an agentwith Sotheby’s International Realty in San Francisco. Severalexecutives with high-tech companies have hired agents at hisbrokerage to locate homes for them in anticipation of “liquidityevents” in the near future, he said.

“They want properties ready to go,” Lynn said.

‘Dealing With It’

Such demand is expected to outweigh the concerns that the U.S.tax revamp will hit home prices. The new law limits deductions forstate and local taxes, including property taxes, and also capsdeductions on mortgage interest at loans up to $750,000 -- anamount that’s easily exceeded in the pricey Bay Area market.

"The market is so strong, it’s not changing people’s outlook,"said Paul Barbagelata of Barbagelata Real Estate in San Francisco."Everybody is kind of dealing with it."

Home values in the city could go up by another 5% to 10% thisyear, Barbagelata said.

Across the Golden Gate Bridge, Tracy McLaughlin, an agentspecializing in Marin County, said that even during the normallyquiet weeks around the holidays she was getting calls for listingsthat she temporarily had taken off the market and had a potentialbuyer fly in from Italy to look at a property.

She discounted the impact of the tax bill on the Marin Countymarket because many of the homes sell for more than $3 million,often in cash transactions, making the loss of tax benefits a minorfactor for the buyers.

“Consumer confidence is what drives the market here,” McLaughlinsaid.

Some Worries

Still, there’s plenty of concern about the tax law’s effect inthe heart of Silicon Valley, according to Michael Repka, chiefexecutive officer of DeLeon Realty in Palo Alto. Earlier thismonth, about 850 people showed up for a real estate tax seminar hiscompany organizes, compared with the 60 to 80 people such eventsnormally draw, he said. Some people he’s talked to are consideringselling their home and moving out of state to save money on taxes,Repko said.

“These are retired people but also people with more flexiblework arrangements,” Repko said. “Some people are consideringselling because they are worried about prices falling.”

The ultimate effect on people’s taxes might be close to zero,however, because homebuyers in the Bay Area tend to be wealthyindividuals who also stand to benefit from reductions in theirfederal tax rate, said Ralph McLaughlin, chief economist forTrulia. In addition, these people may make homebuying decisions onother factors, such as family and status, he said.

“We have a healthy economy, with a healthy, oftenwell-compensated workforce boosting demand,” McLaughlin said.“Unless there’s a major correction in the tech sector, we’ll seeprices continue to go up.”

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