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Inventory shortageThe low amount of housing inventory for sale amidst economic recovery spells trouble for buyers, first because there’s little to choose from, and second, because the best homes go awfully fast, with multiple offers, at over list price and often – in Silicon Valley, at least – with no contingencies for inspection or property condition, loan or appraisal.

Why is inventory so low?  When will it get better?

On Monday and Tuesday of this week, I was at a real estate seminar at the San Jose Convention Center presented by Brian Buffini of Buffini and Company (out of the San Diego area).   Joe Niego, one of the presenters, shared five reasons why real estate inventory is tight:

  1. Boomerang buyers (home buyers coming back into the market after foreclosure or short sales – they don’t remain renters)
  2. Echo boomers entering the market (age 18-31; the average age for a first time home buyer is 30)
  3. Slowdown of new construction starts (we are about 5 years behind as construction slowed significantly during the downturn)
  4. Longevity (people are living longer and staying in their homes longer)
  5. Immigration and population growth (we are seeing that in spades in the San Jose area!)

All of the five factors above are true nationally.  It’s worse in Santa Clara and San Mateo Counties! Further, foreclosures are falling and nearly gone in many parts of the San Francisco Bay Area.  Add to that the major tech boom we are seeing, with huge numbers of new hires from companies like Facebook, Google, Apple…. you can see the problem compounded.   But wait, there’s more!  Also we must factor in to that the fact that many home owners are afraid to sell because they fear not being able to buy another home if they do sell.  Finally, in some areas, people still cannot afford to sell because they bought at the height of the market.  They really need to be about 10% over where they bought to be able to sell and not lose money when you factor in the very significant transactional costs.   We have what feels like an “inventory gridlock”.

When will it get better?

A few things will need to happen for the inventory to loosen up.

  • New housing starts: First, new homes need to be built (and for us in the San Jose area, in a commute-worthy range).  Home owners will need to feel confident about being able to get their next home. For that to happen, prices will need to quit rising so fast (so that they aren’t priced out of the market if there’s a six month hiatus between selling and buying) and interest rates need to hold steady at an affordable rate (since if rates rise, sellers really will not want to part with their homes, per the Wall Street Journal).
  • Tech boom calming:  While the tech boom is great in many regards, too much competition for housing is making locals crazy, especially in San Francisco, where Silicon Valley seems to be taking a foothold and the commuter busses and employees of those firms are pushing people out of homes and off the roads.  So if tech would cool down just a bit, we’d feel it in our real estate market.  The ripples will be big.  (I’m not wishing a dot-com boom and bust like we saw in 2000 and 2001 – that was awful.)
  • Home buyers will need to vote with their feet and decide that it’s just too expensive.  As home prices escalate far faster than incomes can keep up, at some point it will become unsustainable.  Buyers will slow down or stop buying until it levels off or corrects.  This is our normal pattern.  Right now we are starting to see that leveling off in Silicon Valley.

Charts for real estate inventory for single family homes in San Jose: first, over the last few years

 

Real Estate Market Chart by Altos Research www.altosresearch.com

 

And next, a closer look at just the last year – it is getting better!

 

Real Estate Market Chart by Altos Research www.altosresearch.com

 

So perhaps the worst of the inventory shortage is over? We can hope so, at least for most buyers’ sake. For sellers, it may be that the very best time to sell is over – but it is still good.

Every market is good for SOMEONE.  Right now, it’s a seller’s market.  And within that seller’s market, it’s ideal for people wanting to sell and relocate out of the area since in most places even where it’s a seller’s market it is much, much calmer then here.

Want to sell your Silicon Valley home?  Please give me a call or shoot me an email for a confidential, no obligation and no-pressure consultation.  Mary Pope-Handy 408 204-7673   mary (at) popehandy.com