You cannot save as fast as the market is going up

Geyser with words Home Prices - you cannot save as fast as the market is going up right nowRight now we are in one of those periods of steep, rapid appreciation of real estate values in Silicon Valley.  It is nearly impossible for first time home buyers to save as fast as the market is going up, so what ends up happening is that affordability falls, and home buyers are priced out of the market.  I have seen this throughout my career whenever we have a steep seller’s market, multiple offers and bidding wars.  In fact, Jim and I were in that same kind of market in the late 1980s when we were trying to purchase our first house.

Awhile back I heard about some nice folks who’ve been renting for more than 15 years while they saved their 20% down payment.  In that length of years, home values have doubled or tripled throughout Los Gatos, San Jose, and Silicon Valley.

Although it would have been hard to buy a home here with a 5% down payment in 2000 or 2005 (it was an ultra hot market then, like today), there were periods when it would have been possible.   We had a couple of corrections in the market when it shifted to a buyer’s market, and at those times, sellers were not so fussy about large downs.

You cannot save as fast as the market is going up when appreciation is this steep

For most people, saving a few thousand a month is a great goal.  Unless you have stock options which will be available soon, though, most people cannot save fast enough to compensate for San Jose area home appreciation.

Today I logged on to MLS Listings and did some research.  For this study, I pulled sales of single family homes in Willow Glen with 1000 – 1500 square feet on lots of 5000 – 7500 square feet, zip code 95125, San Jose Unified Schools.  Here are the average sale prices, month over month, for that segment of the local Silicon Valley real estate market.

Please note in the graph below that the average sale price for February (so far – the month is not yet over) is higher than at any other point, even more than the peak of the market in Spring 2018. The graph provides a good “sense of the market” generally. It’s clear that average home prices are up more than $100,000 over the last month or two. 

 

2020-02-27 Average sale price SFH subset of Willow Glen

 

Many of you readers really love the data, so here are the month over month numbers, for a more precise picture of what is happening. I’ve put a red box around all of the February entries, and a blue-purple one for January and February 2020.

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Why looking at the comps may lead you astray in determining market value today

The CompsHome buyers (and sellers too) here in Silicon Valley like to “see the comps” when trying to determine fair market value or the probable buyer’s value for real estate.  Usually that translates into seeing what sold & closed escrow recently and for how much.

In an appreciating market and a strong seller’s market, though, the comps are not so much help as you might hope.  They are yesterday’s news!  What closed escrow last week was negotiated 30 or 35 days prior, in most cases.  By the time a San Jose area home is on record as a newly closed sale, it may already be out of date information. Not only that, but the MLS won’t tell us, at least not in most cases, how many offers there were or details about them – such has how many of them were all cash offers.

I see this mistake a lot in my real estate practice across Santa Clara County.  Clients want to view sales around a property they’re interested in. With our terribly severe inventory shortage, there may not be enough recently closed sales – so we look further out in location, futher back in time.  If prices are going up fast (as they can do in Cupertino, Palo Alto and elsewhere), the only way you will be in step with the market is if you also factor in the appreciation that has likely taken place since each comparable property has closed escrow, whether that was 2 weeks ago or 3 months ago.  And that’s hard to gauge.

What to do, then? (more…)

The Silicon Valley real estate market bubble – it’s back! Or is it?

Another Silicon Valley real estate market bubble?Hearing the real estate market “war stories” about dozens of offers on Silicon Valley properties and overbids ranging from 20 – 55% had convinced me that we were in a Silicon Valley real estate market bubble back in early 2013. At least, this is what a bubble looks like, sounds like, feels like, and acts like.   At the time I thought, “how much longer could this continue?”  Four years and counting – that is the answer.

I tell my family and friends that we are in “crazyland” as buyers purchase homes with no contingencies of any kind, houses sell in 10 days or less (if everything is right, which seems to be the case 75% of the time), and those same properties are selling at well over list price and with much more than 20% down.

The absorption rate, or months of inventory: it is a Silicon Valley real estate market bubble?

What do the numbers say?  I just logged into MLSListings.com and see that right now, in all of Santa Clara County there are 817 single family homes (houses + duet or attached single family homes).  The pending and contingent homes measure 1074, far more! That ratio alone suggests that the market is in overdrive.  In the last 30 days, 950 single family  homes have sold & closed escrow.  So the months of inventory is 817 divided by 950 = .86 of a month of inventory, so about 3.5 weeks of inventory. (When I originally blogged about the potential bubble, it was 1.8 months of inventory.)

In other words, things are flying off the shelves. And they have been, with only a few minor blips here and there, since early 2012. Does that sound like a Silicon Valley real estate market bubble to you – a crazy strong seller’s market lasting 4.5 years?  I could be wrong, but I think of bubbles as being something fairly swift, not a multi year trend.

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, combined with bad financial regulations, lead to the crash of 2007-2009. But perhaps that enormous “correction”, in which Santa Clara County lost about 50% of its value on average, had more room to recover than we initially realized. Jobs keep flowing in, and housing starts are not keeping up. Supply and demand – the age old equation. That would seem to refute the idea that this is a Silicon Valley real estate market bubble. Perhaps low inventory and strong demand are what we should be expecting going forward. (more…)

Santa Clara County’s inventory crisis

Santa Clara County is experiencing critically low inventory of homes for sale and it’s at the level of a true inventory crisis. It’s not unusual to see listings decrease in December, but this is more than the normal dip of properties on the market in Silicon Valley. It’s worse.

This afternoon I ran the statistics on MLSListings, and here’s what I see for available listings of single family homes in Santa Clara County (the greater San Jose area):

 

Santa Clara County inventory of single family homes as of 12-7-2016

 

Usually the data is taken from the last day of the month, and obviously doing this on the 7th may skew it a little for this month (or maybe not: perhaps it will be lower still!). But check out the year over year figures – what do you see as typical for November or December going back as far as 2002?

Buyers are jumping on the best properties. I’m finding multiple offers on a wide variety of houses and in all kinds of price ranges and locations, including Morgan Hill, which is often much more sluggish than parts north. (This is not the story of every house on the market, of course. Many are badly photographed, overpriced, hard to see, not clean, or have other issues which make them undesirable to Silicon Valley home buyers. When real estate has an attractive price, is clean and shows well, is nicely marketed, staged, accessible, etc., it will get a crowd of interested buyers. Or at least one!)

 

Interest rates and the inventory crisis

No doubt, interest rates are a huge factor in the low inventory crisis, as they impact buying power.

If a home buyer could afford a monthly payment of $4000, here’s what happens with different interest rates (assuming a 30  year fixed mortgage):

$4000 at last winter’s rate of 3.5% = loan amount of $1,002,127
$4000 payment at today’s rate of 4.125% = loan amount of $928,506
$4000 payment at a rate of 5% (within a few years?) = loan amount of $838,267

Rising interest rates may stunt price appreciation somewhat, but you cannot count on it – it does not always happen. Or there may be a pressure downward on pricing, but perhaps not proportional (not enough help for the stretched home buyer).

Scarcity and multiple offers

Houses priced aggressively (lower than what the sellers and listing agent think it’s truly worth) to attract multiple offers are getting huge results and overbids. Not every property is selling fast, but on average, homes are going for more than 100% of list price in this area. With multiple offer situations, buyers who succeed in winning are those with larger down payments (more than 20%), few or no contingencies, a high price, and of course offer an As Is sale.

If you are a home buyer trying to compete in this challenging real estate market, please take a look at this summary article and the six related posts:

https://sanjoserealestatelosgatoshomes.com/summary-of-tips-for-multiple-offer-situations-silicon-valley-real-estate-contracts/

If you are a home owner thinking of selling, now is a great time! The lower the inventory the better your odds are of selling. If you tried selling your property without success this year, please read this article on why some houses or condos don’t sell:
https://sanjoserealestatelosgatoshomes.com/why-didnt-my-san-jose-home-sell/. Another article on that same topic is on my popehandy.com site: Things which will make a home buyer RUN from purchasing your home

And back to the first question about inventory: when will it rise? As you study the chart, above, you’ll notice that inventory normally rises in spring and peaks in the summer most years. So, buyers, continue looking and hang on. There will be some new offerings in the new year, and by March we should see a significant uptick. If not, look out – prices will go up even faster. So if you find a home you love now, don’t wait.

 

 

 

Silicon Valley home prices, rental prices both rising rapidly

Here are the headlines from the San Jose Mercury News in mid April 2014:

Home Prices to buy or rent going up April 15-16 2014

Rental article: Bay Area apartment rents set record 4/16/14

Excerpt:  Bay Area apartment rents are rising at nearly double-digit annual rates and have reached record levels, according to a report released Tuesday, prompting some analysts to warn that the region’s economic boom could be choked off by the relentless rise…..  Among the Bay Area’s three largest cities, San Jose had an average asking rent of $2,066 during this year’s January-March quarter, up 10.3 percent from the same period last year, RealFacts reported. Oakland had an average rental rate of $2,187, up 12.3 percent, while San Francisco posted an average of $3,057, up 9.5 percent.

Home buying article:   Bay Area home prices jump year over year

Excerpt:  March marked more than 20 consecutive months of year-over-year price gains for single-family homes in the East Bay, South Bay and Peninsula, according to real estate information service DataQuick, which released a report on March sales Wednesday…. The San Diego-based company said that prices were up 29.2 percent from the previous March in Alameda County to $575,000. In Contra Costa County, prices rose 22.8 percent to $425,000. Santa Clara County gained 20.3 percent to $800,000, and San Mateo County was up 13.2 percent to $860,000.

Whether you buy or rent, prices have been rising dramatically.  When factoring in what housing will cost, include the trajectory of appreciation per month.

 

 

 

Low inventory in Silicon Valley: it hurts more than you might know!

The news reports abound around the country that housing inventory is low. Silicon Valley home sellers know that when supply is lower than demand, home prices rise.  So it seems to be a good thing for the housing market.

But is it?

Home buyers want to buy when prices are rising (fear –> motivation).  No one wants to purchase property when the asset will be worth less tomorrow.  However, it’s not all sunshine and roses when prices rise fast.  Lots of things go wrong when it’s an overheated seller’s market:

  • Home buyers worry that they overpay, and once they are in contract, or in negotiations with what seems to be an accepted verbal offer, may panic and back out.
  • Appraisers may not be able to appraise the home to sales price, putting the escrow or sale at risk of failing (or buyers or seller may have to make up the cash difference between sale price and appraisal price).
  • With low inventory, there are fewer sales, so everyone in related industries is making less income: lenders, real estate sales people, title / escrow employees, inspectors, etc.  (This is not a small thing.  Many title and escrow workers are getting 10-20% pay cuts right now. Many Realtors have zero income because they have a lot of buyers and no sellers.)

It’s nice to have a slow or modest appreciation because buyers want to buy when prices are going up and they feel that this is a good way to spend money. But when appreciation is too rapid, it’s very stressful and causes all kinds of problems for everyone except home sellers.  We are hoping it will loosen up a little soon and come back to a moderate appreciation.  That’s where everyone is happiest!

 

 

 

Incredible year over year appreciation in Sunnyvale

It costs whatToday I spent a little time gathering the month over month and year over year median sales price changes in Sunnyvale from my Santa Clara County ReReport (you can do it too, it just takes time). Sunnyvale has felt like a bubble in that the appreciation has been too steep, too long for it to be sustainable.

Is it a bubble?  The market is calming down or leveling out a bit in many places – but how about Sunnyvale?.  Jobs are strong. Many firms are hiring. There remains a housing shortage.  But the rate of appreciation has been crazy high.  Rather than speculate about how good (sellers) or bad (buyers) it is, let’s see how strong the change has been.

The image below shows the increase or decrease of the median sales price for single family homes in Sunnyvale, first month over month, and then year over year from May 2011 to May 2013. The the last 12 months, the year over year average change to the median sales price has been a whopping 22%.  One month it was 60%! (It was when that was happening that I screamed “bubble” on this blog.) (more…)

Home prices in San Jose’s Cambrian District 95124 Rising Rapidly

The 95124 zip code, which corresponds to about 2/3 of the Cambrian district of San Jose, is seeing steeply rising prices right now.  How steep is it?  Here’s a peek at the average sales price, year to date, of single family homes in 95124 (run via the MLS moments ago):

Sale Prices Over Time (COE)
MonthAverage Sale Price
Jan$727,776
Feb$715,923
Mar$800,977
Apr$825,073

Time frame is from Jan 2013 to Apr 2013

Property Sub Class is ‘Single Family Residential’
Zip Code is ‘95124’
Results calculated from 133 listings
There are many anecdotal stories of multiple offers and overbids – but this statistic alone should make it clear that the market has changed.  Further, looking at comps will cause buyers to undervalue prices because the comps are yesterday’s prices, not today’s.
You can see the heating up in the days on market and average sale price to list price ratio too:
Avg DOM & Sale to List Price Ratio
MonthSale Price to List Price RatioDays to Sell, Average
Apr 201299.5%32
May 2012101.2%48
Jun 2012102.4%25
Jul 2012101.8%33
Aug 2012101.9%28
Sep 2012102.8%19
Oct 2012104.8%24
Nov 2012102.4%82
Dec 2012101.1%47
Jan 2013102.9%26
Feb 2013103.8%42
Mar 2013106.0%35

Time frame is from Apr 2012 to Mar 2013

Property Sub Class is ‘Single Family Residential’
Zip Code is ‘95124’
Results calculated from approximately 570 listings
Want to bid on a Cambrian home in 95124? It’s important to factor in rapid appreciation so that you aren’t accidentally priced out of the market by underbidding multiple times while prices continue to go up.

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(all data current as of 4/15/2024)

Listing information deemed reliable but not guaranteed. Read full disclaimer.

 
 

 

Appreciation in the Blossom Streets near Alta Vista School along the Los Gatos and Cambrian San Jose border

This last weekend I was holding open my new listing in west Los Gatos at 212 More Avenue.  A few people asked me how Los Gatos is faring in terms of appreciation now as compared to the height of the market a few years ago.  While places like Cupertino and Sunnyvale are already well past that previous peak, other west valley communities are sneaking up on equaling it.  The Alta Vista neighborhood, on the San Jose (Cambrian Park) and Los Gatos border, is precisely there (as is most of Los Gatos under $2 million).  The Alta Vista neighborhood should hit peak pricing very soon.  So far this year, there’s only one closed sale in this neighborhood due to very low inventory levels, but within a couple of months we should have more complete data, and I think by late summer we’ll see new highs.

I spent quite a bit of time on our MLS, pulling sales within a defined area of the map (between and including Blossom Valley Drive to Blossom Crest, over to Blossom Wood and across to Sycamore Ct. – basically all the  Garcia built homes, mostly in Cambrian) going back to 1999 (that’s as far as the data seems to go).  Some years had more sales than others. Most are in San Jose, a few in Los Gatos.   Some have been added onto, and some are still small 1100 SF ranch style homes.  All of those disclaimers aside, here’s how the average sold price per square foot looks, year by year, and where it appears to be headed with my red trend line (on par with the old high point).

 

Blossom Streets near Alta Vista School Appreciation

 

So for all of you home owners who longed for those 2006 prices – looks like this may be your year!  Call or email me if you’d like a no-pressure, no-hassle, no-obligation consultation on home selling here in the Alta Vista Neighborhood or anywhere in the greater San Jose area.

For more reading:

The Cambrian Real Estate Market Update

Los Gatos Real Estate Market Trends and Statistics

 

 

 

San Jose Housing Inventory and Real Estate Prices

366 houses for sale in San Jose 2-27-2013

San Jose housing inventory is critically low, and this is pushing real estate prices higher and higher.  Home buyers are finding that not only do they get outbid on pricing in this market, they are also out maneuvered on terms as others dare to write purchase contracts with no contingencies of any kind or bring 100% cash to the closing table.

Today we’re going to consider the realty market trends for houses (inventory, pricing and market momentum) in the city of San Jose courtesy of Altos Research, to which I have a subscription, and using some other tools as well.  This is helpful information for area home buyers or sellers to better understand the negotiating lay of the land.  (For newcomers: San Jose represents a little more than half of Santa Clara County and is often reflective of how the rest of the county is doing.)

Let’s start with inventory.  How many houses are for sale today in San Jose? Just turned to MLSListings.com and searched – as of right now, there are a measly 366 single family homes for sale in San Jose which are not under contract.

 

San Jose Housing Inventory 30 days

San Jose Housing Inventory the last 30 days

San Jose housing inventory for the last year

San Jose housing inventory for the last year

 

 

 

 

 

 

 

 

Now let’s look at the trends over the last three years – I marked each year’s peak with the green diamond to highlight the pattern.

 

San Jose inventory of houses for sale over the last 3 years

San Jose inventory of houses for sale over the last 3 years

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