Home values in Santa Clara County and San Mateo County have dropped below the spring peak pricing, and some areas are showing a clear declining market. While seasonality is pretty common, and I believe that prices will rise again in the new year, seeing the lower sales numbers after you’ve purchased is disheartening, to say the least.

I know personally that it feels horrible to buy a home and then see the value drop. It happened to me in 1989 with Jim’s and my first home.

The stuff people say if you overpay for your house

graphic: what to say? Did you overpay for your house>

Somehow, people just don’t seem to know what to say when prices fall after you become a new homeowner. You feel sick in your stomach from the fear of having made a terrible mistake. A solid “I’m sorry” or “I’m here if you want to vent” would be simpatico. Most friends and relatives, though, will want to bolster your morale – and come out with strange comments when faced with your sadness or concern in a badly bungled effort to make you feel better.

“It’s just a paper loss”, someone will say, hoping to reassure you.

“You aren’t moving, so it doesn’t matter right now, does it?” offers another.

“You’ll be there a long time – when you sell, the market will have recovered and then some.”

In the end, none of those remarks are helpful, though the intentions are no doubt good.  They want you to feel better. (And, that doesn’t mean they’re wrong – only that they are not helpful to your understandable angst.)

When we bought our first home, the market had just begun to correct after a ferociously hot escalation. We saved a bit from the peak, had plenty of selection, did not face multiple offers, and were grateful. We knew that the market might drop further, but we were in it for the long haul. What we didn’t know was that it was going to be a few years before it started to recover. It wasn’t a steep slide, but it felt never-ending. We wished that our mortgage had somehow been tied to the value and declined accordingly, but of course it doesn’t work that way.

If you have closed escrow and immediately prices fall, it is going to feel bad. You would feel the same way if you put your whole retirement account into one stock or mutual fund and it immediately lost value. (I think more friends & family would be sympathetic if they thought about it along those lines.) So please know that feeling cruddy in that case is valid. Before sharing with loved ones how you feel, you may want to tell them upfront that you aren’t looking for anyone to fix the situation or how you feel, that you just want them to listen. If they do, that’s a gift.

Did you actually overpay for your house?

If you paid in line with what the market was doing the month in which you placed your bid, you didn’t actually overpay for your house. You may have paid at the peak, but that is different from over paying. The first thing I would suggest doing is checking out the data. Did all other homes sell for about the price you paid? If so, you did not overpay that week. Is it about the same price per square foot for similar homes? If so, you were in line with the market. If you paid 10% over list price, and the average sale to list price was 112%, were you too high? It doesn’t look like it.

What is hard to figure out is when the peak of the market will be. Realtors can tell you that most years, the highest price will be in spring, but that’s not always the case.

Put simply: if you paid in line with what others were paying at the time you bid, you didn’t overpay.

If things changed later, the market shifted.

Shift happens.

Mistake made: you DID overpay for your house. Now what?

Let’s say you did, in fact, overpay for your home – and it wasn’t the market shifting. Maybe you’d been in 9 other multiple offer situations, and this time you said “the heck with it, I’m going to WIN this one” – and you spiked the price, becoming an outlier. In that case, you have to ask yourself what your motivation was.

In many cases, buyers hit the high price to be done with it. They are sick of bidding and losing – and watching the prices go up and up.  Sometimes, that particular house has something the buyer simply must have, whether it’s a view, close proximity to grandma and grandpa, walking distance to a particular school, the perfect feng shui or vastu, or who knows what.

If homes are appreciating at $20,000 per month and you bid the home up by 2 or 3 months’ time, perhaps you were just jumping the line in order to secure a property before prices got worse. Maybe you were tired of spending all your weekend time house hunting, reading disclosure packets, and bidding, and you just wanted to get on with your life. That is totally understandable.

Whatever the motivation was, if you did overpay for the home, is there anything you can do about it after the fact?

Not much, as it turns out. But you may be able to get a break on your property taxes!

In 2011, a Russian billionaire (not a typo – Billionaire) bought a property in Los Altos Hills for $100,000,000 ($100 million). In 2012, the Santa Clara County tax assessor’s office valued it at $50 million – and you think you feel bad for a little overpaying?! – thereby cutting the billionaire’s property tax bill in half. It’s a bad news / good news situation.

If you have truly overpaid, consider the opportunity to get your taxes temporarily reduced (until the market rebounds) and enjoy lower tax bills in the meantime.

Wait it out

Beyond that, please… wait it out if you can. I knew a few people who freaked out about being “underwater” during the great recession and who dumped properties in short sales or who let them go in foreclosures. Had they held on, those same homes would have doubled in value within 10 years. Some had no choice, but others may have felt they were making a clever choice to do a short sale.

Meanwhile, let’s see what happens over the next 6 to 12 months. It is true that we are overdue for a real estate correction. My sense is that it won’t be int he next six months. Anything could happen with the 2020 elections, though. There are a lot of variables out there.

My best guess (prediction?) is that we will have one more good real estate spring between January and April of 2019. If you feel you bought for too much money this year, hang on and let’s see what 2019 brings.


Related reading:

Why do you keep losing out on multiple offers?

How Important Are Permits and Finals?

Tips for Writing a Competitive Offer: Part One