Recent housing reporting has been all over the place. The price range between $300,000 – $600,000 is still very competitive with some listings going for 101% to 103% to list price. But there are strong indicators that the above $700,000 market is going to start feeling price pressure. Why? When the housing bust started, the government increased the high income area loan limit to $729,750. That meant that if you qualified you could place as little as 3.5% down on a home as long as your loan limit did not exceed $729,750.
“The number of $500,000-plus homes sold dropped 25.4 percent month-to-month and 19.2 percent year-over-year, while sales below $500,000 fell 17.1 percent month-to-month and increased 3.5 percent from a year ago.” Data Quick
But now, that has been reduced to $625,500. This means the buying pool for FHA loans will be reduced. In February 2010 nearly 20% of all loans were FHA in the San Jose/Silicon Valley area. Prior to 2009, the number of FHA loans were 0% because the conforming loan limit was $417,000. So, some are predicting a 3-5% reduction in buyers being able to afford over $700,000 for the remaining of 2011. There are movements in Congress to extend the higher limits but lenders have already stopped accepting applications.
Active listings consist of Short sales, about 30% of the market while REO/bank owned homes are about 10%. Highest demand areas are currently good school areas which is driven by parents trying to find homes before the school year starts. As always, the best homes, in pristine move-in condition, in the best neighborhoods, i.e. schools, are selling first for the most money with multiple offers.
But where are the deals? Talking with investors, even the court house steps are not providing many deals. An investor I spoke with last week told me the banks are pushing prices up even on homes that need a lot of repairs. This means the flipper is having to cut back on the amount of work completed on a home before it goes back on the market. Buyer beware, as many flippers are cutting corners and even though it may have granite, there may be major repairs needed underneath.
Bottom of the market?
Looking at different neighborhoods around San Jose here are the “bottom of the market” dates.
Alum Rock – April 2009 – since then Alum Rock has regained nearly 20%
Berryessa – Had a double dip – once in May of 2009 and a second in January 2011. Since January 2011 – it has gained 13% in Avg Sales Price (ASP).
Willow Glen – Low Dec 2008, but now up 30% from that point in ASP. However, Willow Glen’s higher end is being hit hard and the average will see some ups and downs.
Central San Jose – Rose Garden and downtown – Has not regained much after bottom of Feb 2009.
Almaden Valley neighborhood – hit bottom in April 2009 but has regained about 15%.
Other steady climbs up since December 2008? Los Gatos, Sunnyvale, Cupertino, Mountain View Palo Alto, Campbell, Cambrian Park, and Saratoga peaked in April and now up and down on average sales price. These areas have already re-gained half of what was lost with the housing bust.
Where are the neighborhoods with “deal” opportunities? These areas are “bumping along the bottom” Why? Longer commutes to tech hubs, less than 900 API scoring schools, lack of “bedroom community” – cute little downtowns and demand for larger houses is slowing as energy cost are expected to rise.
Blossom Valley –
Santa Teresa –
South San Jose –
Morgan Hill –
What is keeping us in a warming market? IPOs, (read job potential), Low Interest rates (4.2%!!), low supply, and high demand.
What is keeping buyers and sellers on the fence? The debt-ceiling… politics – has everyone stepping back and re-assessing. European challenges and changes in GSE backing and FHA loan limits have some with their hands in their pocket fiddling with their money and not quite ready to pull it out and spend it.
However, daily calls from investors and money from China continues to place non-leveraged, all cash offers on the table. Anyone that has lived in the Bay Area for over 10 years sees this as the best chance to afford a home due to prices and rates.
What do you think?
Finding a home in the Silicon Valley has always taken market knowledge, a commitment to the process, and a leap of faith. That hasn’t changed.
As you are thinking about your real estate decision, know that I am here, every day, in the trenches, sorting through data, looking at homes, nosing out deals, and keeping an eye on your goals.