Wednesday, October 1, 2014

2014 Q3 Real Estate Update


This third quarter has seen the most dramatic changes over the last two and a half years in the real estate landscape.  You will recall in my Q2 update where I declared that the market was slowing.  I am here to say that is has been confirmed; not only is the Bay Area feeling the slowdown, but the rest of the nation as well.  I’ve been saying this quarter after quarter that an average 7 days on the market, low inventory of homes and dramatic overbids are not sustainable behaviors.  The key reasons for the slowdown are high prices, buyer fatigue, reduction in investor demand and an increase in the supply of homes.

The Slowdown Breakdown

Year-to-date I would estimate that we have seen a cumulative price increase of about 60% over the last two and a half years.  Let’s say you bought a Townhome for $500,000 January of 2012, you could sell your property for $800,000 today.  Another example is if you bought a Single Family Home for $1.2M January of 2012, that same property would be worth $1.9M today.

How did we get to these exorbitant prices?  The answer is one sale at a time.  With the limited amount of homes on the market and an increase in Buyer’s, Buyer’s had to compete with double digit Buyer’s on every home.  Cash or Buyer’s with heavy down payments were overbidding in $100,000 increments past the sale price of the last home in the neighborhood.  This aggressive behavior led many Buyers to lose one home after another, to the point where they were either priced out or fatigued by the endeavor.  As prices rose, investors looked at their profit/loss spreadsheets and realized that prices were too high to make a return on investment.  Lastly, there is an increase in supply in both retail and new home constructions.  Seller’s are now rushing to put their homes on the market realizing that the good times maybe over.  This has added more inventory to the re-sale market.  I’ve also been seeing a ton of new home construction and apartments being built in order to satisfy the increase in both purchase and rental demands of the last two and a half years.  As new construction projects have a much longer lead time from land acquisition to build out, by the time many of these come online, they will find themselves in a down market.  This flood of supply will ultimately drag down home prices and rental prices further.

Global Issues and Interest Rates

We live in a global world where nations are heavily intertwined economically.  There are rumors of China’s economy slowing down and possible property bubbles.  The European Union economies are still feeling the effects of sanctions put on Russia and already had recovering economies before that point.  Even if the United States economy continues to recover, there is a possibility that other nations economies could still drag on our economy.

The Ukrainian crisis appears to have subsided for now, but it has now been replaced by airstrikes on ISIS in Syria and Iraq.  If this crisis escalates and the US is dragged into another war with boots on the ground, it could change the trajectory of our economy significantly.  In recent weeks, Hong Kong protestors have taken to the streets in defiance against China’s methodology of leader selection.  Currently this is not a direct issue, but again if it escalates, this could damage our world economy overall as we see the stock market being dragged down by the news today.  Lastly, the Ebola outbreak scare in Texas today is another concern to monitor.

What is surprising is that the slowdown is not directly correlated with interest rates as they have been fairly steady.  However, all indications are that the rates will go up slowly next year.  This is definitely a concern as this would further push Buyer’s out of the market with already high home prices the monthly payments would not be manageable.

State of the Bay Area Real Estate Market

All the factors above I have been seeing first hand in our local market.  Over the last few months, my listings saw a large amount of open house traffic, a good amount of disclosure downloads, many interested agents and then in the final hour one after another the Buyer’s dropped off.  I am still left with one or two serious Buyer’s, but the drop off in actual offers was eye opening.  Offers were less and less over list price and Buyer’s are actually able to reserve time for due diligence periods.   Not all locations are seeing slowdowns quite yet.  Areas located close to technology companies or anchored by strong schools, continue to see the same overbidding procedures and low days on the market.  The exceptions are homes that are in the upper millions and over two million ranges are starting to see longer days on the market and price drops.

2015 Outlook

My projection is that 2015 will be the year of leveling prices on its way to a more balanced market.  I expect home prices to hold and even drop from peak prices.  I do expect a gradual decline but ultimately leveling prices.  Homes will likely stay on the market for more than 30 days as Buyer’s will have more homes to choose from and less competition overall.  Seller’s will panic and flood the market with more inventory and also new home constructions may create more supply than demand.  The net result will be more downward pressure on home prices.  My advice to Seller’s who have been thinking about selling, is to hit the market and grab as close to peak prices as possible.  On the purchasing side, those of you that need to buy a home just based on life factors, it is a great to time to jump in and have less competition to manage overall.  For those of you that have re-sale value on the top of your list, I would say hold off so you can to see in which direction this market will trend and jump in when the market is at a lower point.

Real Estate Live Feed

Here are some real time activities that I have been involved in to give you an idea of what is going on in the market in real time.

Recent and Upcoming Listings
  •  1624 Wheatley Place in Silver Creek San Jose – This home has been on the market for 2 weeks and starting to see some interest at the 2 week mark.  Patience is key in this market as we have been accustomed to lots of early activity.  Property is what you’d expect from a million dollar home, with high ceilings, all the modern upgrades with an amazing yard.  This home is anchored by solid schools; James F. Smith Elementary (964 API) and Chaboya Middle (946 API).  Let me know if you or someone you know is interested in this property - www.1624Wheatley.com
  •  ComingSoon Townhome on N Cascade Terrace in Sunnyvale – Upcoming Townhome listing in Sunnyvale with Chester W. Nimitz Elementary (870 API) and Cupertino Middle (900 API).  Clients likely won’t list this until the Spring time, but if you want a sneak peak, I maybe able to arrange a showing
Buyer Wants
  •  I have well approved clients looking for Single Family homes in the Cambrian, Los Gatos and Almaden areas.  If you or someone you know may have a property in these locations, please let me know!
  •  I also have well approved clients looking for Townhomes in Sunnyvale and Mountain View with great schools if possible!  Again pass potential sellers my way!
Q2 Activity Summary
  •  196 Mirada Drive in Daly City – This was my listing that sold right at the peak and took advantage of the high prices, high demand and low supply in San Francisco.  Daly City is a step away from the city, yet so much more affordable.  My listing here sold for $76,000 over list price with a 9 total offers
  •  3619 Deep Harbor Court in San Jose – Beautiful fully re-modeled home in San Jose sold to my Buyers.  Due to a slowing market we were able to get at list price without overbidding
  •  594 De Guigne Drive in Sunnyvale – This was my listing that really opened my eyes to how fast the market was turning.  All indicators pointed towards this home selling very quickly; low inventory, solid price, prime location, strong open house traffic and agent interest.  When the deadlines came we had 1 solid offer, but Buyers dropped off one by one.  In my opinion we caught the off peak price with the market shifting, which is a huge win and still only 2 weeks on the market, which is still excellent.  I was still able to push this home over it’s list price by $26,000
  •  6054 Foothill Glen Drive in San Jose – This was my listing that exceeded my expectations.  With the slowing market and the further distance in the Santa Teresa area, I was expecting longer days on market and less offers.  The comparables in the area were averaging 30 days and I was pleased to buck the average trend.  After 9 days on the market, we had 2 offers and this home will close today close to list price
  •  206 Cross Bridge Drive in Danville – This home was sold to my Buyer’s below list price.  Markets that are further from the center of tech, such as Danville and San Ramon, are seeing much slower markets.  For those of you looking for more house for your money, these areas should be explored.  Asked me about these opportunities!
  •  382 Santa Elena Terrace in Sunnyvale – This was my listing that showed similar results to 594 De Guigne in Sunnyale.  Again low inventory, strong open house traffic, lots of interest, disclosure downloads, then one-by-one the Buyer’s dropped off.  I still had 2 offers and we sold the home for over list price still but another sign of the market slowing down
  •  920 Plumtree Lane in Mountain View – Sold to my Buyer’s.  Surprisingly this well located property in the Springer community garnered only 2 bids.  The home needed some work, but there was more inventory that was done up that many passed on this property.  With the work needed in the house, this home would still be under comparable sales prices in the area.  This is an example of the opportunities in this shifting market
Thank You For Your Referrals!

I wanted to take a moment to thank each and every one of you for your referrals.  Last month I had the honor of pushing into the top 1% of Keller Williams Agents.  People are often surprised to learn that my business is solely through your kind referrals.  I am always thankful and appreciative of all of your business and when your friends, family and colleagues need real estate help that you think of me!  I look forward to closing out what will be a record year for my business.  I will always remember that this would not be possible without your referrals!  I wish you and your family an excellent rest of 2014!

Regards,

Alan

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