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
