February 2024 Silicon Valley Real Estate Update - Aggressive Bidding Wars are Back

As predicted in our 2023 year in review, imagine if the rates went down how competitive the market would be? 2024 answered this question and the answer is aggressive bidding wars. The market has kicked off on fire for Sellers. Rates dropped from half a percent to a full percent and Buyers are done delaying their home purchases. More Sellers are content with the lower rates and putting their homes out for sale than 2023, although it will be unlikely to be enough to satisfy demand. We expect 2024 to be a Sellers’ market.

Video Summary - https://youtu.be/NiCYEU2QXdE

Live Listing Case Studies

Here are some live case studies from our home sales this year.:

• 1166 Spencer, Mountain View, CA – 7 Offers, Sold $292,000,  6.8% Over List Price
• 632 Spruce, Sunnyvale, CA – 20 Offers, Sold $617,000, 29.5% Over List Price
• 656 Giannini, Santa Clara, CA – 20 Offers, Sold Price - $2,450,000, $552,000, 29% Over List Price
• 921 Gridley, San Jose, CA – 14 Offers, Sold 20%+ Over List, Sale Pending
• 2426 Cory, San Jose, CA – 12 Offers, Sold Off Market 20%+ Over List, Sale Pending

Inflation Rates

Inflation rates rose slightly in December and dropped in January. We are seeing an uptick in February. With these 2 increases, the Federal is in no hurry to drop interest rates.

Exhibit 1 – Inflation Rates

Mortgage Rates

Rates were in the upper 6% to over 7% in 2023, which forced many Sellers stay in their current homes. This year rates have dropped to the lower 6% range but still fluctuating. This drop was enough to get more Sellers to sell their homes this year and Buyers to come back into the market in droves.

Exhibit 2 – Mortgage Interest Rates Nationwide

Exhibit 3 – Local Mortgage Interest Wells Fargo Home Mortgage 

NASDAQ Stock Index

The NASDAQ Stock Index which indicates the health of our technology companies is at an all-time high. We saw a 30% increase in 2023 and currently a 6.8% increase year to date. The majority of offers that I am reviewing are from employees at Google, Apple or Meta. The stock portfolios are the source of down payments for Silicon Valley home buyers.

Exhibit 4 – NASDAQ Stock Index

Unemployment

A bit concerning is despite the stock values of technology companies at all-time highs, this has not stopped the sector from laying off and continuing hiring freezes. An issue to monitor is the unemployment rate. Traditionally at 4.5% to 4.6% in California, we are currently the rate at 5.1%. So far this is not high enough to cause any issues in the housing sector, but this is a datapoint to monitor. Despite layoffs all of last year, there were still a large number of layoffs in January of this year in the Technology sector.

Exhibit 5 – California Unemployment Rate

Exhibit 6 – Layoffs in the Technology Sector

Conclusion

This market is not for the faint of heart. Buyers who are your competition are armed with heavy down payments, at times cash and ready to win. Be ready to compete hard to win. The silver lining would be to try to win a home sooner rather than later, as prices are increasing every week. If you are looking to buy, you would be better off getting in and getting out and increase your equity further. Sellers you will find that the market will surprise you on pricing, but some of you will find it hard to resist the temptation to aim higher than the market is willing to pay at that moment in time. A point to note, eventually Buyers do get tired of bidding wars, so take advantage while you still can. We anticipate 2024 to continue to be an aggressive Sellers’ market for most of the year.

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2023 Silicon Valley Real Estate Year-in-Review and 2024 Outlook

Video Summary - https://youtu.be/lwL-iUMXBRg

We wish you and your families a happy new year and hope the holidays were a good time to travel and to get some rest. 2023 was a very different year in real estate, the most different that we have seen in 20 years in the business. Interest rates were in the upper 6% to 7% ranges, causing Sellers to pause and stay in their homes as the switching costs were simply too high. Despite high interest rates, Buyers’ home buying needs continued as they needed to buy homes for their families. Buyers quickly realized that inventory levels were extremely low, which forced them into bidding situations once again. Economically we made excellent progress on inflation, bringing the rate down from 6% to 3.1%. Economists project that the Federal Reserve will drop rates in Q3 of 2024 and will likely hold steady for Q1 and Q2 of 2024. In anticipation of this, in December lenders lowered the mortgage interest rates to the lower 6% range. The NASDAQ gained 43% in 2023 which is great news for Silicon Valley tech buyers whose down payments and wealth are heavily tied to their employee stock plans. Layoffs have continued but have held steady overall and not in large numbers.

We anticipate 2024 to be a low inventory Sellers’ market this year. Those of you that were buying in 2023, we often asked ourselves the question, “what happens if rates dropped can you imagine the competition then?” In 2024, Buyers will be running into increased levels competition due to these lower rates and positive health of stock portfolios, paired with the economy trending in the positive direction is going to create fierce bidding wars. The hope is that the lower rates will encourage Sellers to move out of their homes so that Buyers have more inventory, but that is never guaranteed in the traditionally inventory stricken high demand area that we live in.

If you are a Seller, 2024 is going to be an even better year for selling real estate depending on where your home is located. As a Buyer, be ready for fierce competition as the lower rates increases the buying your power dramatically as well as that of your competitors. Every market and home type is different so do reach out to us for a more specific analysis of your home. Reach out to us through a direct message or email alan@alanwangrealty.com text or call (408)313-4352 for a personal consultation. Have a great start to 2024!

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September 2023 Silicon Valley Real Estate Update

 2023 has been a strong Sellers’ market year to date. Sellers have been holding onto their record low interest rates and unwilling to sell. Despite higher interest rates (6% to 6.5%), the low supply has brought the return of multiple offers on properties. Cash offers are abundant once again. However, we seem to be possibly entering into our seasonally slower season. Last weekend, open houses were slow for the first time all year. We are heading into that fall season and it is not uncommon to see a drop-off in activity as we head into the holidays.

Federal Reserve

The Federal Reserve decided to hold rates steady, yet leaving a window open for another rate hike this year. They want to make sure that inflation rates are under control and we don’t see them loosening quickly but slowly in the next year or two.

Seller Advice

As a Seller, the market is currently in your favor if you are looking to sell. Depending on your urgency, we should try to avoid the holiday season and plan for the spring market instead. Reach out to us for a direct analysis on your families situation.

Buyer Advice

Many of our Buyers have been offering and winning properties. Competition is there but not as fierce as it was during the pandemic. Some of you have expressed the desire to take the wait and see approach or frustrated with the low inventory. We certainly cannot control the inventory, but we certainly can control our mindsets. The market is competitive, there is no question, however imagine what will happen if the interest start to trend downwards. Suddenly Buyers can afford a higher home price and an even more aggressive bidding war emerges. Todays overbid could be tomorrows bargain and this is seen in our market year in and year out. As a Buyer take advantage of the upcoming slower season and be ready to move if you see an opportunity. People that succeed do not do so by following the crowd, be aggressive while others are on break before the next wave hits!

Thank You All For Your Support!

Despite a tough year in our industry due to low inventory, each and everyone of you continue to partner with us for your real estate needs. You continue to entrust us with your friends and family. We continually thank you for trusting us and we will always continue to elevate our expertise and level of service. Have a happy September!

Q1 2023 Silicon Valley Real Estate Update

As we conclude the first quarter of 2023, the Silicon Valley real estate market continues to experience a roller coaster of activity on macro and micro economic levels. Overall, the real estate market is recovering in 2023. After putting their real estate needs on hold from May to December of 2022, Buyers realized that life events continue, and real estate purchases could not be put on hold any longer. They accepted the new interest rate environment and entered back into the marketplace.

 

Silicon Valley Bank Collapse

 

One recurring question has been around the collapse of Silicon Valley Bank. We have not seen any significant impact to residential real estate, with companies' payrolls and funds being guaranteed by the government. This was a prudent move by our government to instill confidence in our banking system. In short, there is nothing to see here carry on.

 

Tale of Two Market Continues

 

The market continues to be divided into two distinct categories. The first prime market of homes with highly desirable criteria, are selling quickly with multiple offers once again. The criteria include good schools, excellent locations, or affordable price points. In contrast, the second market is a bit slower in some markets or property types, with factors such as above market Seller expectations, not a strong school district, or a less central location have all contributed to sluggish sales in this sector.

 

General Trends

 

Looking at general trends, prime markets are once again seeing multiple offers. For example, a tear-down property in Saratoga off the market received nine offers, a Sunnyvale single-family home with good schools attracted five offers and a townhome in Los Gatos has 11 offers. The second market sector saw fewer offers, such as a San Mateo townhome after long days on market received 2 offers after a price drop and a Sunnyvale single-family home that was pulled off the market without receiving any offers. Overall, the Silicon Valley real estate market is still competitive, and homes that meet the right criteria are receiving multiple offers. However, sellers need to be mindful of pricing their homes to the market value to ensure that they achieve the best possible outcome in this market. Buyers are pickier than during the COVID years. We will continue to monitor the market trends and provide updates as they emerge throughout the year.

 

NASDAQ

 

The technology heavy NASDAQ was down 33.8% in 2022. This wiped out the 23% of stock market gains in 2021, but there is good news. As of 4/3/2023, the NASDAQ has recovered 17.7% making this a net 7% recovery since the COVID year. This is better news and could explain why Buyers are back in the market with a little bit more down payment.

 

Exhibit 1 – Nasdaq Composite 2023 Snapshot

Source - Yahoo! Finance

 

Mortgage Interest Rates

 

In 2023, Buyers got accustomed to the interest rates and loan programs have gotten a little more advantageous for Buyers. Rates have dropped slightly but continue to hold above the record lows prior.

 

Exhibit 2 – 30 Year Fixed Mortgage Rate

 

Source – St Louis Federal Reserve

 

Here is a sample of local rates which are lower than the national average especially on jumbo loans.

 

Exhibit 3 – Local Wells Fargo Mortgage Rate

Source - Wells Fargo Private Mortgage

 

Inflation

 

The rate increases are having an effect. Inflation rates have gone from 9.1% to 6%. We are trending in the right direction, but we still have ways to go to get to the 2% to 3% range.

 

Exhibit 4 – 12 Month Inflation Percentage

Source – US Bureau of Labor Statistics

 

Layoffs in the Technology Sector

 

Layoffs continue in the tech sector almost weekly. Tech employees are getting a good amount of runway as far as severance pay, so the impact may not reveal itself until Q3 or Q4 of 2023. Most companies are on hiring freezes and there are a lot of candidates looking for work. Although not ideal, there are consulting jobs available at a worst case, that could prevent this from becoming a broader issue for our local economy. We will have to monitor the impact if any to residential real estate.

 

Exhibit 5 – Technology Layoffs

Source – True Up Tech

 

Unemployment

 

The unemployment rate has increased slightly from 4.1% to 4.3%. Again, something to monitor with the tech layoffs.

 

Exhibit 6 – California Unemployment Rate

Source – Bureau of Labor

 

Real Estate Outlook

 

2023 kicked off with a strong start for most Sellers. Inventory has remained low, and this market has always been on the cusp of shifting to a Sellers’ market. As a Seller if you one universal fact remains, every home has a sweet spot, and if priced correctly, the property will sell. The question then becomes whether sellers are willing to price their home in line with market's expectations and take an offer in that price range. If you have been thinking about selling, look at the price recovery and see if that is an acceptable net amount for you to proceed with a sale. If not continue to hold until the market turns further to that acceptable price point.

 

As a Buyer, if you did not buy last year, you missed the bottom. However, do not fear, the market is coming off the bottom and recovering. Without a crystal ball it is difficult to perfectly time the market, but rest knowing that the market is recovering from the bottom, and it is still a great time to buy. Be ready to compete though not as aggressively as during COVID. Remember real estate is a long-term investment and best to own Silicon Valley real estate instead of renting and missing out on the upside when the market turns once again.

Schedule Your Custom Real Estate Strategy Consultation Meeting

Everyone family has a unique real estate scenario specific to their needs and circumstances. We are always available to have a strategic consultation meeting with you to address your needs and come up with an execution plan. Book your consultation with us today at homes@alanwangrealty.com or call and text us at (408)313-4352.

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2022 Silicon Valley Real Estate Year in Review and 2023 Outlook

 

Turbulence would be an understatement for how the real estate market fared since the beginning of the COVID-19 pandemic. When the pandemic locked us in our homes, there was widespread fear of how our lives, our health and our jobs would be affected. The stock market dropped in value and the housing market froze.

 

Then in a blink of an eye, the stock market turned upward, especially companies in the technology sector. Technology was heavily relied upon to navigate through the pandemic which is why these companies saw enormous growth. Technology stocks soared by over 23% and thereby increased the wealth of Silicon Valley workers. The Federal Reserve acted quickly and dropped interest rates. Mortgage interest rates were once again at all-time lows. Two factors also became critical; families needed more space specifically bedrooms and more yard space. Paired with increased wealth for down payments and loans at bargain rates, Buyers came out in droves to purchase the home that their families desperately needed. In an area with traditionally low inventory, this spike in demand caused an aggressive level of bidding that we have not seen in our 19+ years in the business.

 

As we emerged from the pandemic, another phenomenon occurred that our economists did not factor into their stimulus. Families working at home cut their spending significantly. Consumer spending dropped as we were trapped in our homes; the byproduct is that our savings increased dramatically. As we emerged from the pandemic and were allowed to dine, enjoy entertainment, and even simply drive again, our pent-up demand exploded across all products lines. There was only one problem, companies did not predict this surge of demand and they not only scaled back production during the pandemic, but COVID affected the ability of their workforces to be at maximum efficiency hence a lower supply of products were produced. Low supply and high demand equated to higher prices. Unfortunately, we over stimulated the economy to which prices soared to over 9% due to this dynamic.

 

At the start of 2022 we were in for a rude awakening. What goes up must come down. Inflation was the theme of the year as our country has been fighting the higher prices by aggressively raising interest rates. This has had a major impact on the prices of Silicon Valley real estate. Prices peaked in April and real estate prices have been on a downward trend since.

 

NASDAQ

 

The technology heavy NASDAQ is down 33.8% in 2022. This not only wiped out the 23% of stock market gains in 2021, but we are taking an additional 10.8% loss on top of that. This has directly affected the amount that Buyers are able to put down on their next homes. This is a major contributor to the current real estate market.

 

Exhibit 1 – Nasdaq Composite 2021

Source Yahoo! Finance

 

Mortgage Interest Rates

 

Our Federal Reserve recognized that they overstimulated the economy and had to aggressively raise interest rates to get inflation under control. This more than doubled the cost to borrow and increased monthly payments dramatically. Cheap money was gone, and Buyers had to quickly adapt to the new reality. Many Buyers moved to the sidelines and continue to wait.

 

Exhibit 2 – 30 Year Fixed Mortgage Rate

 

Source – St Louis Federal Reserve

Inflation

 

Despite all the bad news there is some good news. These aggressive increases in the prime rate seem to be having an effect. Inflation peaked at 9.1% and is trending downward to 7.1% in November. The Federal Reserve did not go as aggressive of late, opting for a half point hike rather than the three-quarter hikes they have been doing much of this year. We are seeing gas prices come down lower as an example. Hopefully this trend continues.

 

Exhibit 3 – 12 Month Inflation Percentage

 

Source – US Bureau of Labor Statistics

 

Layoffs in the Technology Sector

 

Ever concerning are the layoffs in the technology sector. Although not all jobs are in the Silicon Valley, a larger amount of the technology jobs are centralized here. This new factor has caused much fear in Silicon Valley home Buyers. If this trend continues, it will add to an already nervous sector of Buyers. Hopefully there are no more layoffs occurring in 2023.

 

Exhibit 4 – Technology Layoffs

Source – Trup Up Tech

 

Unemployment

 

Despite the layoffs, for now the unemployment rate remains at 4.1%. It might take a few more months for this data to settle to determine if the Technology layoffs had any affect.

Source – Bureau of Labor

 

2023 Real Estate Outlook

 

If we are optimistic perhaps the market turns in the next 2 quarters, however realistically we could be in this down market for most of next year. The critical factor to note is that inventory levels are still low. Our clients who are looking for homes, often complain that they are not pleased with the inventory available. It would not take much of a surge in demand to turn the market back into an aggressive Sellers’ market once again. For now, all of the leading economic factors seem to be pitted against a turnaround in the current market.

 

For our Buyers, the question is always when we will the market bottom as far as prices and when is the best time to buy. We never know when the bottom is and once we do it has passed us already. The real questions are do you have a family need and is this a long-term purchase? If the answer is yes to both of these questions, then it is a good time to buy. For those of you that are speculating, remember that when the market turns it turns quickly and with the market down 15% to 20% it is not a bad time to get in.

 

For our Sellers, the question is always is it a good time to sell? The key questions are do you have a family need to sell and do have you made a good amount of equity? If the answer is yes to both of these questions, then yes, it is a good time to sell. If not perhaps you can wait out 2023 for a better market in 2024. The questions is how much further could this market go in 2023? Should we take our gains off the table now or can we wait longer for the market to recover?

Schedule Your Custom Real Estate Strategy Consultation Meeting

Everyone family has a unique real estate scenario specific to their needs and circumstances. We are always available to have a strategic consultation meeting with you to address your needs and come up with an execution plan. Book your consultation with us today at homes@alanwangrealty.com or call and text us at (408)313-4352.

Wishing you and your families an amazing 2023!

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