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.
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.
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
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
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
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.
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