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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