The new numbers are out from my friends at Chicago Title and Altos Research. The indication is that the San Jose market is continuing toward a buyer’s market. The reasons why this is happening are three-fold.
First, the sub-prime loan issues have caused lenders to pull back loan options once available to buyers and implement conservative approval requirements that existed pre-boom years. The impact of their bet that the boom would outrun the risk they were taking with buyers has caught up to them. Sadly, everyone suffers a bit on this one.
Secondly, the number of homes on the market in some neighborhoods is almost twice as much as last year. In the boom years we normally had about 3 months worth of inventory on hand. Now we are pushing that out to 9 and 10 months. As recent as last year, average days on the market (DOM) normally hovered around 35. Now that number reported in this week at 98.
Finally, the influence of media hype, inexperienced agents, caught-in-the-middle home owners, and pressured buyers are creating somewhat of a perfect storm. But with all this said, I offer my opinion on how to survive.
Sellers you must become very patient. The days of getting offers the first week out the door and closing in 30 days are going to be few and far between. If you live in Cupertino, Santa Clara, parts of Cambrian and Willow Glen, there are still some multiple bids and fast sales going on, but realize even these neighborhoods are seeing changes.
Pricing is more important than ever. Look at your neighborhood activity and sales in the last 3 months. Look at how many short sales are in the neighborhood. Look at how many price reductions there have been. Find the sweet spot with your Realtor and plan for a minimum 6-month marketing plan.
Buyer’s must have the courage it takes to buy in a changing market. For those who think prices will be better next year and plan to hold out, be careful. A good analysis with your lender on the impact of higher interest rates vs potential sales drop can be very telling. Lenders will be very conservative and good credit scores, low debt-to-income ratios, 3-months reserves, and yes – a down payment will be the new standard for borrowers.
Every player in the real estate game must look at this time as a new season. Realtors must be at the top of their game to nail pricing without simply slashing equity. They will also need to help buyers connect with the right lending professionals as well be constantly aware of the “best deal” neighborhoods.
Sellers should plan to give their home time on the market. Patience is absolutely key. Buyers need to recognize in spite of all the talk, buying a home remains one of the best investments one can make in their future and in their family.
Here are the numbers for contracts in escrow:
<25% indicates a buyers market
>25% indicates a sellers market
Area 1: South County 12.4%
Area 2: Santa Teresa 13.2%
Area 3: Evergreen 17.5%
Area 5: North Valley. 22.9%
Area 8: Santa Clara 28.4%
Area 10: Willow Glen 26.9%
Area 12: Blossom Vly. 20.6%
Area 13: Almaden 32.7%
Area 14: Cambrian 25.2%
Area 15: Campbell 29.8%
Area 16: Los Gatos 29.7%
Area 18: Cupertino 50%
Area 19: Sunnyvale 37.6%
Average % for areas 1 through 23 SFR only is 18.8% On June 9th it was 22.5%
From Altos Research: