Getting priced out of the market when housing prices rise rapidly

Home being carried up and away from earth by balloons with the words "Priced out of the market?"Are you getting priced out of the market? If so, you’re not alone. In Silicon Valley, the prices of houses are rising dramatically right now. In some cases, homes are selling for 20% or more than list  price. Recently I’ve heard of at least 2-3 homes which sold $400,000 or more over the asking price. This is happening in prices up to $3 million especially, but I’m also hearing it in the luxury tier.

With rapid housing price appreciation in Silicon Valley, home buyers who are “patiently waiting” for more inventory and just the right house to come on the market can end up finding themselves “priced out of the market“.

What does it mean to be “priced out of the market”?

In a nutshell, it means that while a few months before, you could afford the type of house you wanted (more or less), but prices have risen so fast that now you feel that you cannot buy anything at all.

If that’s the case, you feel that it’s no longer worth it to buy – so you continue to rent (or not purchase that investment property).

The waiting strategy may backfire

Have you been patiently waiting for just the right house to come on the market?  Let me suggest to you that it may not be forthcoming. What you could afford a year ago is no longer possible today, and we do not see that situation changing anytime soon. In fact, appreciation would appear to be steeper now than it was 12 months ago. Waiting can be very expensive in a market like this one.

Why do buyers wait when they might do better to jump in?

Want to be a home owner in the San Jose area? Hire a great agent, but then LISTEN to him or her! (more…)

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.

(more…)

Buy a home in 2018 – where to begin?

Buy a home - school desk photo as there's much to learn!The idea of buying a home, especially a first one, is both exhilarating and overwhelming. Where do you begin if you want to buy a home in 2018?  If you want to purchase real estate in Silicon Valley before the year is over, you’ll need to get a number of things in order, including hiring professionals to help you.

Purchasing now, in this multiple offer market requires strong credit, a healthy down payment with set aside for reserves and improvements after closing, time and energy,  and no small amount of courage. Looking halfheartedly means you will see properties, but not buy.  After the down payment, probably the most important element you’ll need to have is commitment, and further, you’ll need a strong team of professionals to assist you. Let’s talk about a solid home buying strategy. (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…)

What are your cold feet costing you?

What are your cold feet costing you?It remains a strong seller’s real estate market in Silicon Valley, with many properties selling with multiple offers, but there’s an undercurrent of concern that we are the near the peak of pricing.  That has some buyers nervous (though most will quip that Apple and Google and others are still hiring, and the local economy is strong – so they are not too worried).  For those who are a little nervous, sometimes it turns into cold feet – and it’s costing them.

What we are seeing in terms of cold feet with Silicon Valley home buying:

This undercurrent is not being widely reported but we are experiencing it in our real estate practices as a few things have been taking place.

First, a larger than usual number of transactions have been falling through.  Many of these, though, are not recorded on the multiple listing service, as they take place right after an offer is accepted, so the listing agent and sellers turn to one of the other bidders and put them into contract within hours.  Because they aren’t recorded, it’s impossible to track – but the stories are out there of this happening more now than a year or two ago.

In other cases, offers are written and submitted but withdrawn before they could be countered or accepted.

And in others, buyer agents say that they will be submitting an offer, but on the day of offer presentation, the home buyers back out and the offer is never submitted.

In my experience, all of these things are happening “more than normal” right now.  A lot of it is not easily measurable.

Symptoms of cold feet to come

Home sellers want to feel confident when they accept a contract that it will stick, both because they don’t want the work or emotional upheaval associated with a transaction that falls through, but also because often the best price is the first price.  When a home ‘resells’, most of the time it is for less than the origanlly accepted bid.

For that reason, smart listing agents are looking for the symptoms of cold feet.  They’d rather not get their sellers into contract with nervous buyers who will change their mind about buying the house or condo.

Symptoms of nervousness about the property at an open house:

  • Dominating the listing agent’s time with incessant and low-level questions – best to give most of your questions to your own buyer’s agent, who will help you with them.   It’s good to ask about the home, the reports and so on, but you don’t want to take so much of the Realtor’s time that he or she cannot talk with others there.   Think balance both in terms of the time and the nature of the questions.   You want to present yourself as reasonable and easy to work with.
  • We often say that the longer a buyer stays, the more likely he or she is to write an offer.  This is true, up to a point.  Buyers who come to an open house and stay for 2 hours, or who make 4 or 5 trips to see the house go from looking interested to appearing unsure.

Symptoms of nervousness about the property (your potentially cold feet) when your offer is submitted:

  • Sending in an incomplete offer and supporting documents. If the listing agent requires proof of funds, provide it.  If the disclosures are to be signed, do all of them – not just the cover sheet.  Aim to be thorough, it will present you as serious.  It will also show that you are not a pain to work with, that you and your Realtor can follow directions and that the listing agent won’t have to chase down the paperwork later.  Go the extra mile, it helps!
  • Submitting an offer package “last minute”, without the buyer’s agent giving advance notice that it’s coming.  Related to this is seeing the property and reviewing everything well in advance, but only deciding a few hours before the deadline to actually write, sign, and submit the bid.   The serious buyers who are rock solid are the ones who know early on that they want the property and are committed to it early on.  Their buyer’s agent will let the listing agent know long before offers are due that these home buyers are going to bid on it.  One agent recently told me “my buyers are madly in love with the house” many days before the offer due date.  This makes a big impression on sellers and their agents.
  • If the buyer’s agent needs to call every few days to see how things are looking, it usually hints that the buyers are not too sure or that they will only write an offer if there’s limited competition.  The truly sure buyers plunge ahead despite competing bids or the lack of them.

Want to buy a home?  Try not to come across as skiddish to the listing agent!  Your cold feet may cost you the home, even if your offer’s got the highest price.  Home sellers and their agents want to feel confident that you will close on the sale if your offer is accepted.  Present yourself as serious, capable, reliable, and easy to work with and your odds of success will be increased.  At the end of the day, it is always “price and terms”, but never underestimate the influence that your behavior and your real estate agent’s behavior play into the overall package, because shaky buyers may not close the sale, but home buyers who are rock solid and madly in love with the house will.

Lastly, in an appreciating market, as we have right now, it should be noted that often the next house or townhouse or condo will be more costly or in worse shape than the one you could not decide to get serious about.  Stay nervous too long, and you could ultimately really impact how much home you can buy at all.  Worse yet, take too long and you may price yourself out of the market entirely.

 

 

 

Low inventory, high demand, multiple offers and overbid craziness in Silicon Valley

Overheated marketIn Silicon Valley, the housing market is again quite overheated.

  • Inventory is down.
  • Home sales are down (because inventory is down).
  • And home buyer morale is down in the wake of multiple offers, overbids and bidding wars.

Pricing are rising fast.   Some folks are now getting priced out of the market and many are just giving up until things calm down. We have seen this before: a Déjà vu.

This is not happening uniformly across Santa Clara County, but is a general trend seen with the most popular properties.  These tend to be the most affordable homes in areas close to high tech job centers (such as condos and townhouses in Sunnyvale, Palo Alto, etc.) as well as the least expensive single family homes in areas with good to great schools (think Union Schools area of San Jose’s Cambrian district, homes in west San Jose 95129 with Cupertino schools, plus of course the more expensive areas with outstanding public education too).  In general, it’s a seller’s market.

As a frustrated home buyer, what can you do?  Besides just throw more cash at the problem, and give away all of your rights?

One approach is to find the segments of the market which are not quite so hot.  For instance, there are lovely townhomes and condominiums which are selling a little more slowly because they are on the expensive end of pricing for their zip code.  Those properties may not sell so fast because many of the buyers in that range are going to push just a little more to get into a single family home instead.

Another idea is to find homes with fixable problems, defects, or issues.  You cannot change location, but it may be possible to take a 3 bed, 1 bath home and add a second bathroom to it.  Many houses with pools (where pricing is under $1 million) sell with less bids because of the pool – and it IS possible to remove a pool, often making a home more valuable to most home buyers.  So target these homes and there may be less competition than the same house without a pool.

Finally, consider properties which have been on the market awhile.  Many buyers won’t take a second look at a house that’s been on the market for 45 or 60 days, but that may be the gem you need.  Most of the time, properties that languish on the market are simply overpriced.  Sometimes there are odor issues or other things which may require more effort to remediate, but these problems may be an opportunity in disguise.

Related reading:

What is a sharp offer or relative bid?

With dozens of offers on that house, why bother?

Overheated market, overheated emotions

 

 

 

Taking your time buying a home? It’s probably costing you.

Many of my clients here in Silicon Valley are highly analytical and risk averse, so want to proceed cautiously, and slowly, with home buying.  Unfortunately, when it’s a hot seller’s market, as it is today in and near San Jose, a long delay in buying can mean higher costs, or worse, getting entirely priced out of the market.

I know first-hand, because I did this myself in the late 80s when purchasing my first home.  The situation was similar.  It was a crazy red hot seller’s market.  Every turnkey home (there weren’t many on the market at all) got multiple offers and massive overbids.  Competitors with the largest down payment and the easiest terms for sellers beat my husband and me out over and over.  We set about to “power save” and boost our downpayment to be more competitive.  But prices rose faster than we could save.  Finally, we broke down and accepted help from my parents in the form of a loan, and we settled on a house that wasn’t really turnkey (and not nearly as nice as what we could have bought 2 years prior).  Looking back now, I believe the amount lost due to our delay in acting decisively was probably equal to between 10 and 20% of our purchase price.  Homes had risen in value that much! And it is happening again.

If you wish to purchase a home in Los Gatos, or anywhere in Santa Clara County, it’s very expensive to take your time.  For instance, most properties in here are selling for about 20% more today than a year ago.  Again, that’s the down payment!  Add to that the rising interest rates and you are getting squeezed on both ends.