We hope that you and your family had a wonderful 2016. It was certainly an eventful year for real estate and here is how the year unfolded and our outlook for 2017!
Year in Review
Year in Review
2016
was filled with highs and lows. The
Spring season started off red hot as lower inventory levels ushered in multiple
Buyer offers across the board and strong sale prices for Sellers. Average home prices hit their highest levels
of all time in the Spring.
Summer
inventory however spiked to its highest level since 2012 and prices leveled off
to their 2015 price points. This is
where the market showed varied levels of performance with a tale of two markets. Homes under and around the million dollar mark
continued to sell quickly garnering multiple offers with above list price
winning bids. There was an especially
heavy demand for Single Family Homes in this category. There are very few neighborhoods left with a
Single Family Home for less than a million dollars, Buyers found themselves
heading further south or deeper into the East Bay for these homes.
Townhomes have been a property class that has performed very well over the last
few years, but showed softness as their price points were hitting levels close
to Single Family Homes in certain markets.
Homes in the $1.5M and up range struggled against more inventory in the
summer and we saw longer days on market and canceled listings.
As
is traditional with the seasons, inventory levels dropped in the fall and
winter. Inventory continued to clear
into the fall and more homes were sold, which continued into the winter
months. There have been a number of
investor flipped homes this fall/winter as well as a continued strong demand
throughout the year for multi-residential homes. Demand remained steady this fall and winter
overall.
Source:
MLS Listings November 2016
Cash Inflows/Outflows from Abroad
Perhaps
one of the major developments are the controls around cash inflows/outflows from
abroad especially from China. The crack
down actually started back in January of 2015, but now both countries have shut
down multiples avenues of cash inflows/outflows in order to prevent money
laundering. US Banks are scrutinizing
downpayments heavily which are affecting loan qualifications. In short, Buyers from this market have not
been able to participate in real estate this year due to these
constraints. This equated to less competition
and bidding activity especially in the upper end of the market.
Interest Rates
The
other major development has been the rise of interest rates. The Federal Reserve has raised rates by .25%
this year and the .25% the year prior.
The year started off with excellent rates in the 3.5% to 3.75% range for
a 30-year fixed and we are closing the year at 4.25%. We have all been accustomed to extremely low
interest rates for a very long time. It
is important to take a look at the historical chart of mortgage rates to
demonstrate that interest rates are still at historical lows. For those of you that have not locked in a
mortgage, though you missed the absolute bottom, historically you will still do
well if you locked in now. Those of you
that are on an Adjustable Mortgage Rate (ARM), you may consider switching to a
30 year fixed as the Federal Reserve is signaling additional increases of .75%
in 2017. It is highly likely that we may
not see rates like these for quite some time.
This could be the year that multiple Buyers enter the market in an
effort to take advantage of these historically low interest rates.
Source:
Federal Reserve Bank of St Louis Economic Research, 30-Year
Fixed Rate Mortgage Average in the United States©
US President Elect Donald
Trump
Perhaps
the biggest news of 2016 is that of President elect Donald Trump. This is certainly an unpredictable presidency
coming in 2017 as this is
not our typical president. The stock market seems to be signaling that
he will be good for business and personal finances. Real Estate is his primary industry and this
alignment should be good for this sector as well. There is much uncertainty on this front as
the New Year unfolds.
Technology Microeconomy
Silicon
Valley real estate is more of a primary home market rather than an investor
centric one. We continue to have heavy
recruiting and hiring from top Technology firms in the area. 2016 saw more Mergers and Acquisitions
(M&A) activity rather than much on the Initial Public Offerings (IPO’s)
side. This had an impact on housing as
the lack of liquidity to Silicon Valley workers reduced Buyers abilities to
garner large downpayments to purchase high priced real estate. 2017 could be the year where unicorns seek
liquidity and ultimately fuel additional real estate purchases for Silicon
Valley workers.
2017 Projections
Despite
all of the changes in 2016, we are expecting another strong year for Silicon
Valley real estate overall. The higher
price points maybe dependent on the performance of stocks and infusion of IPO’s
that could possibly occur in 2017. The
big question for Sellers is how long can prices continue to climb as the last 7
years have continued to show price appreciation. With interest rates rising, this has a direct
impact on affordability. For Buyers do
you take advantage of still historically low rates and enter the market now or
wait for a downturn that may or may not come in the short run? Primary home buying is not always tied to
finances as there many other reasons to purchase a home as well. 2017 looks to be another exciting year for
Silicon Valley real estate. We wish you
and your family a Happy New Year and we stand ready to assist with your real
estate needs!
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Alan has
been a Realtor in the Silicon Valley for over 13 years and in the technology
industry for over 14 years. He is the Founder of the Alan Wang Realty Group
within Keller Williams Realty. He is passionate about helping his clients
understand the market direction in order for them to make the best possible
strategic decisions on their real estate strategies and execution plans.
