Hearing the real estate market “war stories” about dozens of offers on Silicon Valley properties and overbids ranging from 20 – 55% has convinced me that this is a bubble. At least, this is what a bubble looks like, sounds like, feels like, and acts like. Maybe I’m wrong. Maybe it’s not a bubble. But would I buy property with these conditions? I don’t think so – it would depend on the home, the area, the price point and the level of interest it was generating. Overall, though, when the market is this hot, I get worried that emotions are running the show and common sense has been lost in the dust.
What do the numbers say? I just logged into MLSListings.com and see that right now, in all of Santa Clara County there are 760 single family homes (houses & duet homes) for sale which are truly available and not sale pending or under contract. In the last 30 days, 542 single family homes have sold. That’s 1.4 months of inventory – a red hot seller’s market. In San Mateo County it’s just slightly cooler with 426 for sale and 238 sold in the last 30 days, resulting in 1.8 months of inventory.
It is even worse in the lower price points. For houses/duets listed at $600,000 or less, in SCC the months of inventory is .64 or about 2 1/2 weeks (149 listed, 232 sold/closed in last 30 days). For SMC, it’s about the same, .69 of one month (67 listed now, 97 sold/closed in last 30 days). Less than a month of inventory – a balanced market is 5 or 6 months! Homes are selling faster than new ones are coming onto the market!
It’s one thing to say that one city, town, or school district has a very low months of inventory (or high absorption rate). It is another altogether to say an entire county is that low. This is a major trend, not a tiny blip in the statistics.
How soon we forget that after the outrageously deep seller’s market in 2000, we had a steep drop in 2001. Or that all the crazy buying in the San Jose area (and other places) in 2005-06 lead to the crash of 2007-2009.
Today we are seeing non-contingent offers with the home buyer having no rights to back out for any reason – not for inspection, loan, or appraisal issues – even when the buyers do have a loan!
About a quarter of all houses, townhomes and condominiums in Santa Clara County are selling all cash, no loans. Many of these are either non-contingent or the contingency period is 2 or 3 days.
Why is it so bad for buyers and so good for sellers right now?
- inventory is at historically low levels
- sellers are holding out for “peak pricing”
- some sellers are afraid that if they sell, they will be unable to buy anything new
- low interest rates make home ownership possible for many who could not buy if the rates were back to the typical 6-8%
- pent up demand: many buyers have been sitting on the fence while the market was soft – many of them cannot wait any more
- rising prices inspire action – fear is a great motivator as many are concerned about getting priced out of the market
If this is a bubble, we don’t know when it will end. So I am not telling you not to buy in 2013. It’s possible that this run up in prices will continue for a year or two before leveling off. It is also possible, though, that a lot of sellers will suddenly decide to sell and that the market will reverse if we get an avalanche of new inventory. What I do advise is caution, and this is for both home owners thinking of selling and also for home buyers who want to buy now.
Sellers: if you wait, you risk putting your property on the market when everyone else does – and if that happens, it will be harder to sell and you may find buyers suddenly becoming quite picky about the condition if they have more choices. Now is a great time to sell in most of the South Bay. It’s impossible to time your sale for the very peak of the market, and it’s a lot more painful to sell in a downturn. If you want to sell in 2013, it would be very wise to get ready soon – while the market is red hot and strongly in your favor. This is especially true if you do not have to buy! (Investors, seniors downsizing to a retirement community where they do not purchase, or folks relocating out of state to areas which are not so limited in inventory.)
Buyers: there are micro-markets and this is key for you. While most of Santa Clara County, particularly in the lowest price ranges, is a red hot sellers’ market, there are homes that are always easier to buy than others – easier as in less competition.
Most buyers all want the same thing: the house which is easy to see, priced low for its condition, fully remodeled, in an ideal location, perfectly staged, offers stunning architectural style photos, presale inspections and disclosures which you can review before bidding, and a home that is easy to see through your Realtor.
Most buyers have 20% down. If you can get 25% or more down, your chances of success will increase.
Buyers will have better luck with the overpriced house that’s been on the market more than a month (and is therefore unlikely to get multiple offers unless there’s a price reduction), the “hard to see” house which is appointment only, the tenant occupied property where the house is a mess and shows terribly – here you must have imagination! There are many other categories such as the amount of work needed, too. Here you’re not shopping as if it’s a high end department store, but instead the more unpleasant sort, but this is where the opportunity may be. Your odds of success will increase if you can tolerate this. If you have at least 20% down, you at least have a chance by altering your strategy a little.
These are scary times for anyone who’s been around awhile and recognizes it as something we’ve seen before, only much, much worse.
One last disclaimer: the real estate market for the Bay Area as a whole is in overdrive. But in each county, there are places which are calmer, more buyable and less sellable. So my comments about the bubble are generic and do not apply to every area, price point, home type, school district, etc.
$2,995,000 : 2661 Waverley ST, PALO ALTO3 beds, 3 baths
$3,500,000 : 1440 S California AVE, PALO ALTO4 beds, 3 baths
$1,998,000 : 2267 Saint Francis DR, PALO ALTO2 beds, 1 bath
$1,298,000 : 561 Thain WAY, PALO ALTO2 beds, 2 baths
$2,595,000 : 809 Richardson CT, PALO ALTO4 beds, 2 baths
$2,798,000 : 841 Seale AVE, PALO ALTO3 beds, 2 baths
$9,988,000 : 3120 Alexis DR, PALO ALTO7 beds, 0 baths
$2,438,000 : 800 High ST 116, PALO ALTO4 beds, 2 baths
$4,195,000 : 1176 Palo Alto AVE, PALO ALTO3 beds, 3 baths
$4,398,000 : 2230 Louis RD, PALO ALTO6 beds, 5 baths
See all Real estate in the city of Palo Alto.
(all data current as of 8/20/2017)
Listing information deemed reliable but not guaranteed. Read full disclaimer.