Is the Silicon Valley real estate market cooling down?

Over the last few days, Realtors from around Silicon Valley keep asking me, “Do you see a change in the market?” I’ve heard it several times. The answer is yes. But then again, it’s late October. This is seasonally normal!

We have become so used to the hyper inflated market of the last 2 years that the smallest moderation of that market seems to make people nervous. But what is seasonally typical? Usually we see a big run-up in the first half of the year, followed by either a leveling off or even a lowering of values in the late part of the year. That’s the pattern that we see most often.

Realtors like to say that you can buy or sell any time of the year in the San Jose area – and it’s true. We don’t have the weather that they have in places like Buffalo to keep us indoors for 1/3 of the year!  Even so, spring is hotter than fall. There are advantages to selling late in the year to be sure: for one, usually there’s less inventory (competition) so the odds of selling and closing are better. But in terms of pricing, spring is usually king.

Just not always.

Back to now: real estate agents in the San Jose area and the Peninsula are reporting smaller numbers of offers on properties and lower overbids. Homes selling over list price are still the norm in many areas, but where there used to be 10% overbids, perhaps there are 5% overbids. This is the general trend.

In some areas, and some price points, we continue to see enormous overbids in the 10% region, even while the area generally is averaging smaller ratios. The homes most likely to outperform the market are those which are super clean, remodeled, worry free, and on the lower end of pricing for the best schools or commute location. While everything else shows cooling, these homes do not. At least not yet.

 

 

 

How many offers will that property get? How much over asking will it go?

Silicon Valley real estateThis month I’ve celebrated my 20th year in real estate.  When I began, in Feb 1993, it was a slow time, a buyer’s market.  Realtors used to say “keep it alive until ’95“, when they expected it to recover.  And recover it did – by the end of the decade, we saw another extremely limited inventory with intense buyer interest and once again (just like the late 80s), a price run up.  It was crazy.  Some homes were getting lots of offers – 5 or 6 at a time, sometimes even more!  In 2000 and 2002 it was crazy.  I remember getting 15 offers on one house in Cupertino.

Huge numbers of multiple offers in Silicon Valley real estate sales today

Last year, though, was another one of those wild markets but much  worse.  One of my listings in Santa Clara last year got 20 offers, and another one in Blossom Valley got 22 – and they were not under priced!

In the last week, I’ve heard of more than 70 disclosure packages going out on one Cambrian house (it got 32 offers), and another one in South San Jose / Santa Teresa selling 55% over list price.  Not to mention the fact that many offers are all cash and a whole lot of them, whether cash or financed, are without contingencies of any kind – no inspection, loan or appraisal contingencies included.

These numbers are mind boggling.  We used to have rules of thumb – 1% per offer or $10,000 per offer over list price.  But when you’re talking about dozens of offers, those old rules of thumb don’t work so well.  (They work better in single digits.)

In many cases, approximately half of the number of disclosures pulled will become offers.  That ratio is higher, perhaps 2/3, when the property is turn key, and it’s lower if it’s a fixer. A property that has scary repairs needed (foundation, drainage, big structural items) may get 25% or fewer offers per disclosures reviewed. If a house has 100 disclosure packages taken out, we might think of it as 50 offers – but it could be 25 or it could be 75 offers. No one knows until they are turned in. (Back in the days of small numbers of multiples, there were times when 4 agents said they were going to bring offers and I got zero, and others were 4 said they were writing and I got 8.)

Home prices are rising, so don’t rely only on the comps (more…)