The cooling Silicon Valley real estate market is less of a question and more of an acknowledged fact (we wondered about it in June, we are sure now). If so, how can you tell? We need to begin by talking about “the market”.
First, Silicon Valley doesn’t have ONE market. The real estate market in Palo Alto or Cupertino is going to be very different from the realty market in Los Gatos, or the various parts of San Jose, such as Almaden, Willow Glen, Cambrian, or Blossom Valley. Ditto that with price points. It’s a very different “market” for entry level houses than for luxury homes.
But if we’re going to speak in broad, sweeping terms about cooling trends, what do we SEE? What do we HEAR? What’s happening with offers and open houses? These are the ways we measure the real estate climate. Often we in the industry hear the anecdotal evidence long before it’s reported in the paper. If we hear one Realtor friend after the next report quiet open houses, or few or no offers, we know there’s a climate change afoot.
I will tell you that I am hearing these things, which hint to a softer market for home buyers:
- Houses taking longer to sell in much of Silicon Valley / Santa Clara County
- Homes selling with fewer offers than 6 or 12 months ago
- Contingencies for loan, appraisal and inspection becoming more common
- More price reductions being necessary for than a few months ago
- Fewer ALL CASH offers
- Sale price to list price coming down a little
All of these suggest a mellowing of the housing market. Do the numbers line up?
The cooling Silicon Valley real estate market: seasonal fluctuations…
Historically, we do know that the busiest time for home sales is usually February – April. Some years it’s shorter or longer. (One particularly bad year, we had exactly 3 good weeks for selling in March and nothing more.) But what do the numbers tell us?
If we view the sale price to list price ratio, we expect there to be “seasonal fluctuations”. We don’t expect a hot seller’s market in December. Therefore, what’s often most helpful is comparing the same statistics year over year. Let’s do that. The image below provides the sale price to list price ratio for houses sold in Santa Clara County from Jan 1 2012 through Aug 24, 2016 (the day I grabbed this data). This was taken from the MLSListings.com site for agents (the private MLS).
I love this kind of presentation because it’s so easy to see both month over month and year over year statistics. Take a look at August (so far) for this year compared to the prior months in 2016. At 101.5% that seems like a fantastic ratio (they would go nuts for this in most of the U.S.). Now compare it to the prior months this year and you can see it’s been coming down since March. OK, now consider prior years…it’s mostly a very similar pattern. That tells us that “spring is hotter”. We already knew that, but seeing it for most of the last few years pretty much drives the point home.
But let’s compare August 2016 to August 2012- Aug 2015. That’s a better “apples to apples” comparison. And here it’s very clear that the real estate market in Silicon Valley really IS COOLER than it was in prior years for the same month. Any doubts? Check the same info for July – yes, all hotter until you get to July 2012. Now June – same as for July. May? Yes, again, hotter for that month in 2013, 2014, and 2015 but not 2012. In retrospect, we now know that 2012 was the year the market ratcheted up for a big, long run.
Before anyone begins screaming that the sky is falling, let me stop and remind you that we are talking about a sale price to list price ratio for the entire county that is at more than 101%. This is not a buyer’s market – at least not as a county. There are hotter and cooler pockets, yes, for sure.
What we are experiencing is a return to normalcy, a flattening out, less appreciation. We are not seeing price drops at this time.
And you know what? We’ve been expecting it.
You cannot sustain double digit appreciation forever.
The reality of the cooling Silicon Valley real estate market has implications for home buyers and home sellers:
Buyers, GET OFF THE FENCE. Interest rates are good. Buying conditions are reasonable again. Yes, inventory is low, but if you know what you want, you should be able to find it in 2-3 months tops. If you can’t, then you are not being realistic with what you think you can buy for your budget.
Sellers, it’s time to be more aggressive on pricing and adjust your expectations. Yes, your neighbor got 15 offers in February, but it’s not February any more. If you get 1-3 offers, that means you did a great job of staging, pricing, and getting your home marketed. Position your home to sell, and then get it done.
Where will we be in 6 or 9 months? I don’t know. It could be better or worse after the election. My advise is to get on with your life and not try to time it too carefully, because things can happen which none of us could anticipate. If you want or need to buy or sell, make it happen.There will always be political things going on, world events taking place. There is never a perfect time to buy or sell – but there is the time you want to do it. Go ahead.
And please let me know how I can help.