Thursday, August 11, 2016

August 2016 Silicon Valley Real Estate Update - Buyers Back in the Power Position

As we close out the summer months, it is key to note that the market has shifted from the red hot Spring season that was a Sellers market to one more favorable to Buyers.  In June, the market shifted and slowed to a more balanced market skewed in favor of Buyers in the majority of the Bay Area.  Subsequently, price appreciation has slowed in Q2 and in some locations even declining from their spring highs.  Cities that have traditionally been untouchable have been seeing slow downs such as Palo Alto, Los Altos, Mountain View, Sunnyvale, San Mateo and even San Francisco just to name a few.

Macroeconomy

The Federal Reserve has left interest rates unchanged and mortgage rates continue to be a bargain.  There seems to be anticipation for the election and many people are concerned and holding steady with major plans and purchases.  The job reports continue to show mixed results but consumer spending appears to be increasing overall.  The stock market experienced some choppiness though it has stabilized at the moment.  We are in a global economy, as the rest of the world struggles this also stifles our recovery given how interdependent world economies have become.

Cash inflows from outside of the United States have been heavily guarded since 2015 and cash purchases from abroad have dropped significantly.  Not only is it difficult to bring funds in from abroad, the majority of banks will not provide a loan for scenarios when they see funds coming from overseas.  Governments have all been clamping down on money laundering, which has a direct affect on investments especially real estate.

Local Technology Microeconomy

The key economic indicator for the Bay Area is the stock performance of the Technology sector, which is the source of Buyers down payments in this area.  Other than Twilio, which is based in San Francisco with 567 employees, there have been no major liquidity events in 2016.  Companies that have been on the IPO watch such as Uber, Airbnb and Dropbox have provided no indication on a timeline and this year’s market may not provide the most optimal timing of such an event.  Many employees are putting their plans on hold as they wait for this capital to fund their housing needs.

There have however been Mergers and Acquisitions (M&A) such as Microsoft’s purchase of Linkedin or Verizon’s purchase of Yahoo to name a few.  The concern with M&A activity is that they are often followed by layoffs, which would further put families housing plans on hold.

Another trend is around the slow down in funding to local startups.  More and more startups are being asked to demonstrate progress before additional rounds of funding are allocated.  The free flow of cash is being gated and also slows down hiring, out of state moves, down demand for housing and home purchases.

Buyers Corner

If you are a Buyer you have more choices on the market, more time to think about your purchase and less competition and at times none at all.  We have been able to actually use our negotiation toolkits of late, which has been refreshing.  If you have been thinking about buying, we suggest that you take advantage now while the market is on your side and Sellers are still adjusting to the new market it is a great time to jump in at a time of uncertainty while many are sidelined.

Sellers Corner

Sellers the market is still a favorable one to sell in, however instead of selling in one week, patience will be required due to the increase in inventory as Buyers have more choices.  The key is not to panic as selling a home in one week with multiple offers was never sustainable or normal in most other areas in the country.  We are excited for both Buyers and Sellers this summer as the activity is becoming more balanced which is trending towards a more normal market at least in the current seasons that we are in and approaching.

Fall and Winter Outlook and Beyond

Likely this shift will continue through the fall and winter, which is typical of the seasonality that we have started to see more of in the last 2 years.  2017 will be a year to watch once the elections have passed and perhaps we gain more stability in the markets, it is possible that the Federal Reserve may start to raise rates as well.  Overall the more balanced market is refreshing as the bull market of the last 4 years was not normal and unsustainable behavior.  We are excited for what is to come soon!

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