Transitional Market

Some segments of the Silicon Valley real estate market seem to have entered a transitional market phase. We’ll go over what that means and what is expected below.

What is a transitional market?

A transitional real estate market is underway when shifts happen in the buyer – seller dynamic. It may not be a full change or reversal from seller’s market to buyer’s market, or vice versa, but the trajectory changes and expectations change, too.

 

Transitional market graphic with sea and rock landscape, beach stones balancing (700 × 350 px)

 

For the last 2+ years, the home sellers have had nearly all of the power. Homes have been selling fast, with many buyers bidding on available properties, with no contingencies, quick escrows, free rent backs, you name it. That’s been the case all over the country, but perhaps to a more extreme level here.

For example:

  • homes that sold with 21 offers a few months ago might sell with 3 – 5 offers (or perhaps just 1)
  • if properties were pending in 7 days on an “offer due date” last season, it may go to 10 days without a deadline
  • if sales were largely without contingencies, we may see them start to reappear
  • in extreme change from today, sellers may again pay for Section 1 termite work and repairs or even help with buyer loan costs by paying points

Price strategy change, too:

Right now, most homes are offered for sale at prices that those sellers may be unwilling to take. (My advice too my clients is to not list it lower than you’d actually take it if it takes a few weeks to sell and you get just one offer.) Listing agents know that if it’s priced attractively, it will get more offers and probably push the eventual price higher than what might be anticipated if the home were put on the market closer to the expected value.

In transitional markets, that gap between the list price and the sale price shrinks – we stop seeing mirage pricing that confuses many buyers. Listing agents may begin to advise sellers to list with “transparent pricing”, or what the sellers expect or want. Sellers may pay for rent backs – if they can still get them.

Conditions leading up to today

It is well known that our Bay Area housing market has been overheated to an extreme ever since Covid showed up. Prices accelerated at the fastest pace that most of us who’ve been selling homes for a long time had ever seen. Prices have roughly doubled since about 2015 or 2016. I’ve seen some neighborhoods where home prices rose 30% in less than 6 months.

Here’s a quick view of the median sale price of single family homes or houses since 2005.

San Jose Median Sale Price of Houses

 

 

Late 2017 seemed to just keep rising into 2018 without the seasonal break we often see in the second half of the year. Late 2018 and 2019 were cooler.  (In October 2018 I wrote about the cooling market.) We also had some cool-down blips in the second half of 2016 and the second half of 2014. The market heats up and it cools down.  But by how much is the question.

With interest rates rising, the stock market plummeting, inflation raging, and war in Europe, it’s no wonder if the market transitions. Most of us would say it’s overdue.

What is changing right now?

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