Los Gatos Real Estate Market
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.
Are you wondering what the Brexit vote will do to US home prices? Lawrence Yun, the National Association of Realtors’ chief economist, believes it could be a good thing short term as investors strive for quality assets that have a return greater than US treasuries, and lower mortgage rates as a result of the flight to US treasuries.
As a Los Gatos Realtor, I hear many consumers and real estate agents state that they believe that U.S. real estate and the U.S. economy are viewed as the most stable in the world. If that is the case, then people from all over will want to invest in homes and land here rather than elsewhere.
Whether you are buying or selling a home in Silicon Valley, the real estate market data is super important to your sense of realty values. This is one area where it”s expensive to get it wrong when pricing a home to sell or deciding on a price for a bid to buy.
How can you get it right?
For a comparable or competitle market analysis:
In general, real estate professionals try to narrow the data to similar properties when doing a market analysis:
- don’t compare apartment style condos with PUD townhouses or single family homes
- don’t compare properties from different zip codes, school districts, or with more than 20% difference in home size
- ideally, DO pick properties within 1 mile, within 10% – 15% plus or minus the size of the home and the land
- ideally, try to get homes similar in age or condition
- make sure the comps are current – 90 days is best, but if you have to go back 11 months or so, make sure that you adjust for the market changes since then
- if at all possible, compare similar type homes: golf properties with golf properties, view homes with view homes, equestrian estates with equestrian estates
- also if possible, use the same zip code as sometimes this also has an impact
General market trends relevant to the property in question
To get a sense of the market generally (rather than just the comps for one particular piece of land or house), it is somewhat the same in terms of criteria, but not so specific. I’ll often use just a few criteria to see how the “overall” market is doing – often the approximate price point, school district, and zip code will do the trick.
For example, if I’m looking in east Los Gatos (Union School District / Campbell Union High School District) for a house worth appx $1,750,000, I might check market data such as the absorption rate or the days on market for homes matching just this criteria:
- Los Gatos / 95032
- High School District 473 (Campbell Union HSD)
- list price OR sale price for solds the last 90 days $1,500,000 – $2,000,000
- Perhaps similar square footage plus or minus 10-20%
This is a small enough segment of the market that I’ll have a pretty good sense of what’s happening there pretty quickly.
Often the Silicon Valley real estate market takes a bit of a nosedive in December and January, only to make a comeback after the SuperBowl. Just now I ran the stats for the city of San Jose, which is big enough, at about 1 million people, to provide a good sense of the market generally.
Below please find a simple chart reflecting houses sold with the days on market and sale price to list price ratio. You can see, clearly, that the SP to LP ratio dips noticeably in December & January, and also that the days on market rise.
Even so, how bad was it? The average DOM was 38 (break-neck speed in any other part of the country) and the average SP to LP ratio fell to “only” 102%.
That was it – that was the “break” that buyers get in winter. Things are reversing course, as often they do in February, March, and April, and multiple offers with big overbids are again the major story in San Jose and throughout the Silicon Valley region. Just this last week I heard of a home in this valley that got 45 offers.
Home buyers, want to purchase this year? Your best bet is to be financially well equiped with 25% down or more if you are buying in any of the hotter areas. This is a nearly impossible market for FHA home buyers or for those with less than 20% down.
Home owners, want to sell this year? You can maximize your return by doing smart fixes and thorough inspections to make buyers feel confident about purchasing your property. That confidence can change the game and bring 10 offers where there might have been 5, and with the larger numbers of bidders usually there come also much larger sale prices.
Call me or email me if you would like to discuss working together and getting your best deal in the current Santa Clara County realty market.
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The Silicon Valley real estate market is experiencing a very slight cooling. For Realtors and other real estate agents, it’s pretty palpable that in general, or overall, it’s not as crazy as it was in the spring of 2015.
Don’t be fooled, it’s not a buyer’s market! This is very much a seller’s market…but instead of getting 10 offers, a lot of homes are getting maybe 3-4. In some cases, home buyers are able to purchase with a contingency here or there (which was fairly rare 10 or 11 months ago).
For sales that closed in January 2016, notice the range of “hotness” below. The county had a sale price to list price ratio of 102.6%. But of course the whole valley didn’t peform at 102.6%! The high end area of Los Altos Hills sold at 93.3% while Sunnyvale was at 108%!
What’s really crucial is drilling down to YOUR market, whether you own and are selling or whether you are trying to buy. “The market” depends on which chunk you’re in – and that’s a combination of location (general or precise), price point, school disstrict, and many other things. Sometimes I see that a particular subdivision simply out performs everything else within a mile. You don’t want to rely on oversimplifications like weighing only price point and zip code, or price point and school district, since things like the age of the home or the tract can hugely influence the market value and level of interest.
In Almaden Valley, the residents of some homes go to Leland High, others to Pioneer (both San Jose Unified School District). Some properties are in the attendance area of the Campbell Union High School District and may go to Leigh or Branham. Still others belong to the Los Gatos-Saratoga Joint Union High School District, and the students there go to Los Gatos High. You better believe that the difference in these schools is a major driver of value.
The real question, then, is whether your market is hot!
Call or email me to sit down and go over your particular market!
Related reading: Is it the top of the real estate market in Silicon Valley?
Silicon Valley housing is among the most expensive not just in the U.S., but in the world. Areas with better schools are more costly still. So what happens when we see a big increase in a highly paid industry concentrate its efforts in a small corridor?
What is happening with hospitals along the Los Gatos border?
First, let’s have a look at what we see taking place with hospitals and related facilities along the northern end of Los Gatos and into San Jose and Campbell.
Good Samaritan Hospital (in San Jose 95124 along the Los Gatos border) and El Camino Hospital of Los Gatos (“Los Gatos Community Hospital” before 2008) are just about one and a half miles apart as the bird flies, and there’s been a tremendous influx of new medical facilities between them – especially near Good Sam. Perhaps the most notable is the Stanford Hospital Cancer Center, which can be seen from Highway 85. A drive through Cambrian, Campbell, or Los Gatos in this west valley area and you’ll also find signs of the Palo Alto Medical Foundation, Kaiser Hospital medical offices and other more remote entities with a local presence. This is smart business on their part and can eliminate fighting commute traffic for patients.
But what is it doing, and more to the point, what will it do to our already sky-high housing prices?
This morning I mapped out the local hospitals and a few of the medical centers and offices (link goes to maps on google for this search). Here’s roughly what the simplified concentration looks like today:
These are just my casual observations and of course there are many other medical office areas not shown – but they are the areas which appear to me to be the most densely populated with cancer treatment centers, physical theraphy sites, surgical centers, rehab facilities, doctors’ practices, etc.
Because many of the adjoining areas are zoned as residential, it’s unlikely that neighborhoods full of homes would suddenly become a doctor’s office, pharmacy, or medical supply stores. Continue reading
First, it’s important to remember that we don’t have just one market in Santa Clara County, San Jose or even Los Gatos. We have a patchwork quilt of markets that are moved by price point, home condition, school districts and school scores, and many more things. An entry level house is always going to be a different market than a luxury estate – but all the shades of gray in between are equally distinct, too.
Once you can look at your particular segment of the market and identify it as such, you can then run the numbers. But beware, it’s too easy to miss a step here. If you’ve got a house worth $1.5 million in Almaden valley with Pioneer high school, please don’t compare it to a $1.5 million home in Almaden Valley with Leland High School. The price point and zip code may be the same, but after that you are in a different land. So drill down to your home (or your desired home’s market).
Next, realize that while there is a softening or cooling of the market, this isn’t a 180 reversal. Sellers, if you thought you’d get 5-8 offers, you may find that your house gets 2 or 3 or 4. That’s still good! Buyers, things are better, but don’t get too cocky – you are still unlikely to be the only bidder, so go in with your strongest package and your best foot forward. And always analyze the market before you bid. Some homes are priced unrealistically high, some unrealistically low, and some on target.
Contingent offers are back! I have done a few sales subject to the sale of another home this year. As long as the home that needs to be sold is priced well and marketed well, this can work. Sellers still want top dollar, so if that means waiting an extra 2-3 weeks for your home to sell, they’ll do it. I’ve seen contingent offers beat out regular offers because the whole package was just stronger.
Lastly, what I’m seeing is seasonally normal. This is not a market crash, only a slight softening.
Some sellers will think that they should wait until next spring to sell.
Some buyers will think that if they wait a year, prices will be far lower.
But for many, trying to “time the market” with real estate is as hard, or maybe harder, than trying to time the stock market. I tell my clients who are looking to buy to keep looking and if the right home comes along, go for it. If a seller needs or wants to sell, do it now. We don’t know when we’ll have the next earthquake, next terrorist attack, next economic crisis. None of us has a crystal ball, and we cannot ever guarantee that tomorrow will be better than today. I’ve been selling homes long enough to know better than to tell people to wait if they are ready now. There are always things out of our control, just around the corner, that we don’t know about.
Please call or email me if you’d like to chat about selling or buying a home in Santa Clara County.