Monday, October 7, 2019

Q3 2019 Silicon Valley Real Estate Market Update: Fluctuating Market


The third quarter of 2019 has been affected by a combination of seasonality and macroeconomic factors that have caused continual fluctuations in the Real Estate market. The Silicon Valley market has trended toward a more balanced market with a bit more activity this quarter than the second quarter.

Macroeconomy

The biggest question weighing on the minds of the consumers is the instability of our political and economic environments; specifically, in regard to the trade war and now the discussion of impeachment. All of these factors are creating instability and volatility in the political and economic outlook.

Interest Rates

In response to these concerns and a weakening economy, the Federal Reserve reduced rates for a second time this year and is anticipated to reduce rates once again by the end of the year. This means lower mortgage interest rates are on the horizon; likely even lower than the previous historically low rates.

Equity Markets - Nasdaq Snapshot Q3 2019

The NASDAQ index, which is the heart of the down payment of Silicon Valley workers, continues to fluctuate, but overall is trending upward from the lows of December 2018 and June 2019.

Exhibit 1 – NASDAQ Stock Index Year-to-Date 2019
Source - Year to Date Yahoo! Finance

Microeconomy

The local Silicon Valley economy continues to remain healthy. Unemployment rates in the area are at all-time lows at 2.7% per the Bureau of Labor Statistics. As mentioned, the overall trend of the NASDAQ has been trending upward, though volatile, and if timed correctly can be maximized for liquidity.

Mortgage Rates

As a result of the Federal Reserve interest rate reduction, mortgage rates have tumbled to record low rates. For Buyers or Homeowners that are cash heavy or have liquid assets, banks are offering additional drops in the interest rate if those assets are brought under their umbrellas. There was a flood of refinance activity that banks did not have the capacity to service which has bogged down the purchase turn times as well. This situation is temporary, and they should scale up very shortly. If you haven’t refinanced last quarter there are likely still excellent rates for you and possibly more to come.

Exhibit 2 – 30- Year Fixed Rate Mortgage Average

Santa Clara County Snapshot

As predicted, the number of Active homes dropped as we exited the summer peak months of inventory. With the drop in inventory, the market showed some relief for Sellers as the days on market for sold homes dropped 36% for Single Family Homes and 19% for Condominiums/Townhomes respectively. The homes that are on the market continue to sit for 38 days and counting, but still 30% and 21% respectively lower than last quarter.

For Single Family Homes we cleared out more inventory in this sector as homes that sold were sold quickly within 2 weeks. The Condominium/Townhome sector took exactly a week longer at 3 weeks on the market to sell but didn’t clear as much inventory with some residual inventory in the quarter. The number of listings taken off the market dropped as well.

In summary, the market has recovered slightly better in the third quarter as compared the second quarter. More homes are selling than last quarter, and they are selling at a faster pace.

Exhibit 3 – Q3 2019 Santa Clara County Real Estate Snapshot 

Source – MLS Listings Database

Seller Advice

Firstly, in many areas, home prices are down anywhere from 10% to 20% from 2018. This is a reality that you will have to accept before being able to successfully sell your home.

As a Seller, you want to be priced at market and have a move-in ready home so that you are one of the sold homes - not the one that is sitting on the market. Buyers have many choices and your home has to stand out among the pack. At times it may not be possible to re-model; in that case, we will do our best to address “low hanging fruit” and be sure to stage your home to compensate. The Condominium and Townhome sectors have improved but continue to struggle, especially if they are not in a prime school district. There are many new home construction builders cutting deals and providing enormous incentives that are hard to match. Creativity will be required.

Buyer Advice

As a Buyer, this is your market! With the price drops and lower mortgage rates, homes have gotten more affordable than in years past. Bear in mind that not all homes are created equal. A home located in a prime location, with good schools, re-modeled and priced right will sell with a few offers, typically though not as aggressive as in prior years. Homes that are on the market for a longer period of time are the ones where you will have more leverage. Be sure you evaluate all options, old and new, and that you have the right team that knows how to operate in both realms. If at all possible, take advantage of this upcoming season as the market tends to slow down. Though you don’t have as many choices, if a Seller needs to sell they likely really “need” to sell and deals can be had.

2020 Outlook

2020 is an election year and it is very likely going to be another fluctuating year for real estate. There will be a lot hinging on the trade war, impeachment situation and the ultimate selection of the president. Most interesting will be the down payments coming from the IPO’s that have occurred earlier this year; will those folks now be out and about to purchase real estate?

Contact Us

For a customized real estate consultation or mortgage evaluation, reach out to us at alan@alanwangrealty.com (408)313-4352 so that we can analyze your specific real estate situations!

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2 comments:

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