After years of resisting, I’m finally starting a blog! I’m excited to begin sharing my knowledge beyond just my current clients. I’ve built up quite a bank of experience since getting my license in 2003, navigated dips in the market, survived the housing crisis of 2008, then survived the bidding wars that followed as the market recovered! Not only that, but I raised two little boys, balanced motherhood with entrepreneurism, got my broker’s license, developed several specialties in my field, and I’ll continue to stretch and reach more every year. My passion for learning and for this industry propels me forward with enthusiasm, and I’m in the mood to share with YOU! So… let’s kick things off with some basic Investment Strategy 101 and then we’ll take it from there.
How’s the market?? I get this question more than any other. The news is always late to the party. By the time they report on something, any busy realtor will tell you it’s old news. So… How do YOU forecast the ongoing strength or weakness of the real estate market in the Silicon Valley (or any city for that matter)? I’ll tell you what I do. I pay close attention to 5 key indicators or “influencers” that you can use across any city.
- Interest Rates
- The Balance Between Supply and Demand
- Employment Trends
- New Corporate Growth
- Migration Patterns
Here is my current take on all five:
Most residential home buyers will get a loan and finance their purchase. Home loan rates play a huge role in buyer demand because even a small adjustment in rates can dramatically affect a buyer’s purchase power and budget. Ok, so what happens when rates pop up unexpectedly? A home buyer “taps the breaks.” They have to recalibrate what they can afford and get adjusted to the type of home they can now afford. Often this leads to disappointment and a pause in shopping. Many buyers (not all!) shop at the top of their comfortable budget. So when rates go up, suddenly they can’t buy the house they want. There is no wiggle room. However, right now the trend is that interest rates are down… so we are looking at a heightened buyer demand this Spring! When you are planning an investment, watching rates is essential for timing the market and anticipating future appreciation rates.
Supply and Demand
Is there enough supply to keep up with this demand, and do we have a balanced market or is it lopsided one way or the other? So right now we are looking at a fairly balanced market. I know this because I look at a few key metrics: Days on market (DOM), which is the average number of days to sell whatever type of home you are studying (Get specific: i.e. luxury condos in Sunnyvale, or single-family fixer upper homes in Campbell). Right now average DOM for single-family homes across Santa Clara County is running right around one month. I’m also looking at whether bidding wars are happening… Are sellers getting their list price? Are they selling higher than list price? Again, there will be pockets of activity depending on the type of home and location, so get specific when you’re studying the market. Right now single-family homes in Santa Clara County are getting 100% of their list price on average, which is an indication of a balanced supply to demand. In our case right now, supply is low but demand is tempered by buyer mood.
Local Employment Trends
The employment in our area in the Silicon Valley is in growth mode. The San Jose and Santa Clara County area accounts for a disproportionate amount of the new job growth for California. This all equates into high local consumer confidence and strong down payments.
NEW Corporate/Commercial Growth
This is a great indicator of the future pace and strength of an area because corporate builders are in it for the LONG game. Construction is happening all over the San Jose and Silicon Valley area, and if you live locally, you know how many cranes are springing up all over — San Jose, Los Gatos, Sunnyvale, Santa Clara… I mean, you look anywhere and you see commercial building projects happening. The amount of money being invested into our area by these corporations such as Adobe, Google, Apple, commercial real estate developers and more… all of this equates into more jobs and it’s not just the tech jobs. I heard an interesting statistic… For every one tech job that is created, approximately three supporting roles are created (think about the construction workers, maintenance crews, restaurants that open, landscapers — its exponential.
Are we getting people in? Are we losing people? And right now, it is very true that a lot of people are moving out of the area. The rapid population growth we have experienced in years past has slowed substantially. We are still growing every year, but it’s tempered by the large number of people retiring or relocating out of the area — and many are going out of state. The cost of living here is very high and affordability is low. There is still a large demand from newcomers, many of whom are absorbing the tech jobs that area being created each year and they are able to afford homes. Our struggle right now is affordable housing for all those supporting roles I mentioned above. This is truly a problem and while we are seeing more “affordable” housing projects building built, there is still a huge gap in what is needed and many folks are being forced out of the local housing market and have to endure very very long commutes each day to and from the outskirts of the county.
I hope this review of the local housing market and the indicators I observe on a regular basis is helpful to you as you keep track of the market and decide your plans for real estate investing! Until next time…
— Kirsten Reilly