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 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…)

Should you write an offer with no contingencies? What is the risk with a non-contingent offer?

Non-Contingent Offers and the Real Estate Market Conditions Advisory

This week I’m having a deja vu from 2000.  If you were here in Silicon Valley then, during the “dot com boom”, you remember a frenzy with the hot sellers market, of home buying with multiple offers, and prices rising rapidly.

In some parts of the market, it’s back.

One of the ugly parts of that market is back too, the “non-contingent offer“.  I’m not talking about offers subject to the sale of another home (aka “contingent offers”). I’m talking about home buyers waiving their inspection contingency and their loan & appraisal contingencies.  (Not clear on home buyer contingencies? Please see my article: “Competing against multiple offers: contingencies and timeframes“.)

Listing agents know better than to give a counter offer demanding a non-contingent offer; that’s a lawsuit waiting to happen if the buyer feels coerced and later gets some sort of nasty surprise. But boy oh boy, do they know how to hint that it’s what they want.  And that’s not a lot different from demanding it.

The Market Conditions Advisory

Silicon Valley home buyers are given many disclosure and contract papers to sign when submitting their bids to purchase residential real estate.  It is important to read and understand them and the risks about which they warn.  One disclosure which is used – or should be used – on most every transaction is the “market conditions advisory“, which warns of risks in multiple offers and some of the ways that buyers may try to have the winning bid that may not really be a good idea in the long run.  The full name of the form is this: (more…)