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Fear of Peak PricingA question I’m getting a lot lately has to do with when the Silicon Valley real estate market will peak.  We’ve had 4 straight years of very strong appreciaion. In east Los Gatos, houses that were selling in early 2012 for about $1,000,000 may now sell for $1,500,000. Consumers have to ask: where will it end?  When do people simply refuse to pay, and move elsewhere?

I don’t have a crystal ball, but I have experienced downturns, and on average they seem to happen about every 10 years in the San Jose – Santa Clara County area.  Usually the “runup” between the downturns is a ton more than the correction.  Often the price rollback is about 10%, while the 10 year period between price corrections might be 30-50%.

Yes, a correction is probably coming.  Yes, our prices are out of control due to a lot of hiring locally and fantastic interest rates combined with a terribly tight inventory.

When? When will prices come back down to earth?

My best guess – and that’s all that it is – is that it will be sometime in the next 2 years or so. Probably not this year because Apple and Google seem to be hiring like crazy (and they are not alone).  Maybe it’ll be in 2017.  Maybe 2018.  But I think before spring 2019. That said – I could be wrong.

Should you wait to buy, then?

Nope.  In my opinion, if you want to make a life for yourself here and plan to stay put 5-10 years, go for it.  Interest rates are good now and may not be in 2 years.  Prices are still climbing.  And heck, if you can stay put for 5-10 years, even if you do buy at the beginnig of a correction (which I did in 1989), you’ll be ok if you can buy and hold.  And the bonus is that in the meantime, if it’s an owner-occupied property, you get a nice tax benefit (talk to your CPA or tax professional about that.)