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Special Mid-Year Market Update (July 2019)

It’s the beginning of July and we’re now half-way through 2019. And, if you’ve been considering to make a move in real estate, either to purchase a home or sell a home, I wanted to make sure I was able to provide some clarity on the current market conditions in and around Silicon Valley.

First of all, how have things been going this year?

2019 was speculated to be a great market for first-time homebuyers and move-up buyers due to rising inventory levels, diminishing investor demand for housing, and an easing of interest rates. And, with inventory beginning the year at very healthy levels (about twice as many homes available for sale when compared to last year), and interest rates remaining relatively low (even falling again recently), 2019 has held true to its forecast. 

[Side-bar: my team and I have already helped numerous families with the simultaneous sale and purchase of real estate…with many purchasing up into a larger home before selling their current home].

But, is this trend likely to hold up through the rest of the year?

Well, let’s talk about supply & demand trends…

So far we’ve seen the rebound in inventory from 2018 continue to hold up. Current “active” inventory across Santa Clara County is sitting at 2,222 listings, down slightly 9% from our peak in May, but up 8% from last year in July. And within San Jose, we’re currently sitting at 1,129 active listings, down slightly again from the peak earlier in May, and up 6% from the same time last year.

What’s interesting to me about this trend, is that our inventory levels are slightly down from the end of the spring market. And, with current interest rates for a 30-year fixed-rate mortgage sitting at 3.75%, down 0.75% from the same time last year, my assumption is that this trend is most likely due to the continued easing of interest rates allowing for an increased number of buyers to come into the market and absorb our housing supply. When interest rates fall, it can be less expensive to own than to rent across many entry-level price points.

And, if we look at “pending sales” figures you’ll notice that our demand has held steady at around 1,300 properties obtaining a contract each month for that last 4-months at the county level, and an average of 700 properties per month going into contract for the City of San Jose.

So, as long as rates continue to remain low, and new inventory continues to be absorbed by steady demand, I expect that we should have a well-balanced market through the end of the year, which will play well for move-up buyers and first-time homebuyers.

So how are these conditions affecting sales prices?

Have we seen a huge crash in home prices across Silicon Valley as some media outlets would suggest?

I hate to disappoint you but in fact, our median sales price for June is up 16% from the beginning of the year at $1,190,000 for Santa Clara County

Now, considering the spike in sales prices witnessed at the beginning of 2018, when prices shot up as much as 24% in some areas, we’re still down about 8% from these peak prices, but when you consider the longer-term trends our prices have consistently appreciated annually in the 9-10% range.

I may be going out on a limb, but I don’t think our prices are “crashing!,” especially when you consider that the current median Sales Price-to-List Price ratio is sitting around 102%, up 2% from January and holding steady. And provided median days to sell have also declined from January and are sitting at about 2-weeks or less. To me, these statistics still represent a very vibrant housing market across the Valley.

So, how will these conditions affect you if you’re thinking about making a move in real estate this year?

As you know, we’re on the front lines interacting with homebuyers and sellers on a daily basis. What we can share with you is that we’re beginning to see a shift in the way that buyers are approaching our market.

A large majority of the buyers we’ve recently met are getting into the market for the first time this year and haven’t been exposed to the past years of competitive multiple offers. So, as inventory levels have risen recently, these inexperienced buyers are becoming increasingly indecisive.

This is creating issues for sellers and opportunities for savvy buyers. Indecisive buyers mean that sellers need to be more strategic when selling their homes; they should take the time to properly prepare their home for sale, and make sure they price appropriately provided the increased competition they in their neighborhoods.

And for buyers, the influx of inexperienced buyers is making it easier for move-up buyers, or those with experience, to negotiate our market and recognize great values with little competition. And, we’re seeing a lot of great properties in the higher-end of the market selling at very reasonable prices quickly to homebuyers that have gained experience from the competitive markets of years past.

Pitfalls of Overpricing Your Home

Timing is Everything

Very often a seller asks, “We can always come down in price later…right?”

Historically when your house goes on the market, the greatest potential for buyer traffic is in the first 30-days, and even less time for internet traffic where often times the majority of the traffic online occurs within the first 72-hours of listing to the internet. By pricing it high with the intention  of dropping the price later, a home seller will risk completely bypassing the best buyer candidates for their property during the most critical time on market.

Showings Shut Out

Agents have an obligation to do what is best for their clients. Clearly, showing overpriced listings does not fall into those criteria. This is especially true in a low inventory seller’s market where agents will intentionally look for properties listed 3-5% below the prevailing market value and below their buyer’s purchase limits. And since most homes, when appropriately priced, can generate multiple offers and sell above asking within weeks of being listed, buyer’s agents are motivated to search out and show these lower priced homes to their clients quickly so that they do not lose out on an opportunity to purchase.

Benefits the Competition

When a home is over priced, it not only sits on the market but it also acts as a selling point for it’s competition. In comparison to “market priced” homes, buyers that view overpriced listings will know that their is no urgency to place an offer to what they expect to be an unreasonable seller. And, when every other listing in a neighborhood is priced lower or at market value a home buyer will instinctively think, “I can get the same house for less!”

Time on Market

With limited inventory available, buyers understand that they must move quickly to see homes that fit into their budget and price range. This means that the bulk of buyer traffic usually always occurs within the first two weeks of a listing, with the most aggressive buyers willing to pay the highest price for the home being some of the first visitors. But if they do not feel a sense of urgency driving them to make an offer within this time period because the home is overpriced, these buyers will quickly move on to other oppotunities.

Without creating a sense of urgency, over priced homes will linger on the market past the initial two weeks, quickly becoming seen by buyers as a home with unknown issues if it does not sell within this time period. Put yourself in the buyer’s shoes…what are the first two things a buyers asks when they consider making an offer on a property? What’s the likely sales price and how long has it been sitting on the market?

Now, when buyers begin circling back, what do you think their first questions will be to their agents? How low below the list price do we think we can purchase this house for? And, what issues doe we need to look out for since no other buyers made an offer?

Lower Sales Proceeds

Overcoming time on market due to price is one of the most difficult obstacles a home seller can face, since they will not be able to get a second chance to make a great first impression. This often leads to selling below the market value which means ending up with lower sales proceeds. And when you add additional carrying costs, advertising costs and possible repair credits for buyers, most sellers that overprice their home find themselves getting the least from their investment rather than the most.

When it comes to getting the most money for your home, in the shortest amount of time with the least amount of stress, nothing can provide greater results than accurately pricing your home for sale. But determining a good pricing strategy can be tricky for many homeowners…rather than relying on the help of popular automated home valuation models such as Zillow, homeowners should always consult a local real estate agent that is very active in their market place.

Thinking of Selling? Now is the Perfect Time

It is common knowledge that a great number of homes sell during the spring-buying season. For that reason, many homeowners hold off on putting their homes on the market until then. The question is whether or not that will be a good strategy this year.

The other listings that do come out in the spring will represent increased competition to any seller. Do a greater number of homes actually come to the market in the spring as compared to the rest of the year? The National Association of Realtors (NAR) recently revealed the months in which most people listed their homes for sale in 2017. Here is a graphic showing the results:

Thinking of Selling? Now is the Perfect Time | MyKCM

The three months in the second quarter of the year (represented in red) are consistently the most popular months for sellers to list their homes on the market. Last year, the number of homes available for sale in January was 1,680,000.

That number spiked to 1,970,000 by May!

Capitalize on the Market Surge

We haven’t seen serious mortgage rate increases for over a decade. However, with the continued rate increases implemented by the Federal Reserve it’s safe to say that mortgage rates are on the rise this year.

With the current housing inventory crisis, a move-up seller will be in great position to sell at peak market and then capitalize on the lower interest rate on their next home. Most will even be able to keep similar monthly housing payments while transferring their equity into a larger home.

But when will they plan to sell? Our guess is that we will see an increase of inventory in mid-to-late spring.

 

What does this mean to you?

With the national job situation improving, and mortgage interest rates projected to rise later in the year, buyers are not waiting until the spring; they are out looking for homes right now. Plus, other homeowners are also realizing that this year is the year to sell and make their move to a larger home, meaning more homes will also be expected to hit the market come Spring. So, if you are looking to sell this year, don’t wait until the spring to list your home as you may find more competition to capture motivated buyers.

Bottom Line

It may make sense to beat the rush of housing inventory that will enter the market in the spring and list your home today.