Friday, April 8, 2016

Silicon Valley April 2016 Real Estate Update

We would like to wish everyone a great start to the Spring season.  Despite a slower market and dips in prices during the fall of 2015, the first quarter of 2016 has returned with a vengeance.  The New Year kicked off with low inventory levels and aggressive Buyer overbidding resumed.  As the weeks have passed and more inventory has entered the market for the Spring season, the quantity of offers have declined in the higher end of homes with competition in the single digits, however the quality of offers remain high.  Homes under a million continue to see strong competition in the double digits.  We remain in a Seller’s market with more inventory targeted for the summer season.
The global economy continues to struggle.  Japan has deployed negative interest rates, China continues to see a slowdown in their market, Europe continues to struggle and the challenges with social stability in the Far East continues to weigh down the region.
The instability in the stock market has stabilized slightly, which has reduced the turbulence that affected the market last year.  A critical factor in our local Technology market, is the lack of liquidity as far as Initial Public Offerings (IPO’s) or acquisitions.  These types of exits create more down payment for local Buyers, further driving the aggressive Seller’s market.  Another concern is around the previously free flow of funding to startup companies has been drying up.  Investors are being more focused on results before offering another round of funding or doing so at lower valuations.  This is a situation that we should monitor.  Perhaps the biggest challenge that will directly affect real estate is the slowing down of hiring in the valley.  This is not a pervasive issue as of yet, but there has been a slowdown noted on the rate of hiring.
Yet in the end the United States economy continues to show steady improvement. Due to that fact, the Federal Reserve continues to signal that they plan to increase the Federal Interest rate by a targeted half percent in 2016.  We have seen mortgage interest rates fluctuate within a half a percent band, however rates continue to hover under the 4% mark for 30 year fixed mortgages and under 3% for the 7-year adjustable loan product.   It is yet to be seen how this will affect mortgage interest rates, thus far the rate hike in December has done little to impact mortgage interest rates.  Many economists speculate that it would take a 1% increase to materially impact housing prices.
Silicon Valley Hotspots
The Peninsula
The Peninsula is the area between San Francisco and the Southbay.  This area continues to have very low inventory and the offers have gotten even more aggressive.  Serious Buyers have become exhausted by the competition and have gotten extremely aggressive in their overbid prices in order to win.  This is likely not going to improve anytime soon.  Often in a family one spouse works in San Francisco while the other in the South Bay.  The Peninsula will continue to be a popular mid-point for most families.
Milpitas/Berryessa San Jose
The upcoming BART expansion into Milpitas and Berryessa has created an increase in demand for housing in both areas.  The number of Buyers have been in the double digits and price appreciation has become extremely aggressive.  This is one of the last areas that have a decent elementary school coupled with prices under a million.
Single Family Homes Less than a Million
Most would consider a million dollars as a large amount for a home and “should” equate to the home of our dreams.  Anywhere else in the nation one would have that dream home for this price. Unfortunately in the Silicon Valley, the million dollar home close to work typically equates to a Condominium or Townhome.
The majority of Buyers tend to prefer a Single Family Home over a Townhome or Condominium.  The key reason is the independence to make changes to the home without a governing authority, the extra cost of that governing authority, as well as having a lot that is yours tends to provide options for homeowners for years to come.
Prices have risen in all locations and staying under a million has become more and more difficult.  As a result Buyers have been going further and further South in the South Bay and also towards the East Bay.  Areas such as South San Jose, Berryessa San Jose and Milpitas has been the latest competition areas for the coveted Single Family Home.  Others are pushing further East to Livermore, Dublin, Pleasanton and San Ramon areas due to affordability.
Pricing Tiers
Homes in great school districts continue their dominance and likely this will never change in our local market.  There has been a slight cooling in properties in the high millions to two million ranges.  The simple fact is that the average Silicon Valley worker would need to have a large down payment in order to make this a manageable monthly expense.  It is not surprising that this group is shrinking as they get into homes.  Again the quantities of offers are lower, but the quality remains high.
Q3/Q4 Real Estate Outlook
Although this behavior is ultimately unsustainable, 2016 is likely not the year that the market balances out.  The last 2 years we have seen seasonality in the fall season and it is likely that we will see that appear this fall as well.  It will be interesting to see what happens if interest rates do move upward and if that will calm Buyer activity at all.  In short, if you are a Seller looking to sell your home, now is the time to do so.  If you are a Buyer, interest rates remain at historical lows, which makes it worthwhile for you to lock in a long-term rate.  Of course if you are not in a hurry, you could wait until the fall period to make the move.
We wish you a wonderful Spring season and here's to an exciting season in Real Estate!