With the massive housing correction, we saw a rise in real estate inventory which has now begun to subside, and we saw a wave of short sales and bank owned properties begin to roll through Santa Clara County. In the “West Valley” communities of Los Gatos, Saratoga, Campbell and Cambrian Park, we have seen the impact of this to varying degrees.
Today I pulled the numbers for these four areas of Silicon Valley to see this history of inventory and pending sales over the last six years to get a year-over-year view of the market. (Status 1 = homes available, Status 2 = homes under contract with a seller’s contingency, they might be available, Status 3 = sale pending with normal contingencies on the buyer’s side for inspections, financing, and/or appraisal, and Status 4 = all contingencies have been removed.)
What do these numbers reveal to us?
As you probably realize, the larger the inventory, the more of a buyer’s market it is, meaning it is a more ideal time to buy generally. Buyers usually do not buy in a buyer’s market, though – which is why the inventory is so large. Most wait until it’s swung into a seller’s market, when the panic of rising prices and/or rising interest rates gets them “off the fence”. Our now shrinking inventory tells us that the market has shifted into the sellers’ favor in many areas and price points (not all). That doesn’t mean that prices are where sellers want them – only that buyers cannot wait to get a good home and will not get the sellers to do all the repairs, as most would have done in 2009 or 2008. Many homes are now selling strictly “as is”.
Another interesting number to track is the “status 2” figures, which are homes under contract but with a contingency on the seller’s side. In years gone by, this would normally reflect a “contingent offer”, meaning that the sale was subject to the buyers being able to sell their home. You can see that usually this is a very tiny fraction of the homes which are sale pending. In recent years, though, that number has gone through the roof. Almost all of them now are short sales, and the seller’s contingency is for bank approval & seller’s acceptance of the bank’s terms for the short sale transaction. The seller can back out of the deal with this type of sale.
Most of the short sales are happening in entry level priced homes, but no part of the San Jose area is now immune. Of these four parts of the west valley, Cambrian is the most affordable – and it has the most short sales. Saratoga is the most expensive of them – and it has the least. Short sales are now closing more than they did in the past, but are still not something you can count on. Short sales may take 3-6 months to close, or perhaps will not close at all.
Also noteworthy is that the pending sales in the more expensive areas of Los Gatos/Monte Sereno and Saratoga are up from last year. These parts of the valley have been slower to get busy and it’s encouraging to see the activity finally pick up there. Part of it is no doubt due to an increase in the number of distressed sales, but also some luxury homes are selling too.
Inventory overall is about normal in Saratoga and Cambrian. Campbell and Los Gatos are a still bit high. If you’re selling a home in Campbell or Los Gatos/Monte Sereno, pay attention to the inventory of homes similar to yours. If your home is simply priced “similarly”, it probably won’t sell. Yours needs to be a “good deal”, which is what buyers are all searching for these days, in order to sell. Highly motivated? Make sure your property is priced aggressively enough that it’s in the bottom 20% of similar homes and that should get the attention and traffic that will lead to a sale.
For Saratoga and Cambrian Park home sellers, you can be a little less worried but if you still want or need to sell, make sure your home is priced in the bottom half of similar homes, ideally in the bottom 30-40%.
Home buyers, remember that while many homes in all of these areas are not selling, the well-priced ones are going fast and often getting multiple offers.
Can you still get a “good deal”? A normal 20% down offer will be where the balance is for most home buyers. Most sellers will give you preference if you have more cash down, but it’s not going to be a 10% discount (probably closer to 3%). If you are a buyer using FHA financing, please understand that most sellers will not be super excited about your offer because of this so you will probably need to pay more than someone with 20% down to get the same house. The terms and price work together – if your terms are great, your price will be better (lower). If your terms are not great, your price will be worse (higher). It is crucial to factor this in realistically when bidding on homes for sale in Silicon Valley: cash is king – the more you have, the better a deal you will likely get.