Is the Real Estate Market Shifting Again?

Although the prevailing thought is that the market should cool off because we’re heading into the holidays, these 2 articles are consistent with the recent market shift I’m observing. It seems like the local real estate market is actually starting to heat up again after the slight summer cool down I wrote about in a series of articles called Market Shift in July 2016.

traffic jam

While some people are astonished by the rise in home prices in the past few years, the economic laws of Supply and Demand still apply. Our local real estate is generally characterized by a tight Supply of homes in the most desirable neighborhoods and school districts. Our local jobs market is one of the main drivers for local Demand for real estate.

It seems that the current Supply and Demand continue to result in a robust real estate market. According to two recent articles in the NY Times and Mercury News, the Supply remains very low and Demand seems to be picking up again based on the increased number of jobs in October.

The first article titled, “Teslas in the Trailer Park: A California City Faces Its Housing Squeeze”, uses Mountain View as a proxy for Silicon Valley. It highlights the fact that we simply don’t have enough housing to support the affluent and growing workforce here. The second article, cites “the Bay Area gained more than 13,000 jobs in October, indicating the region’s economic boom appears back on track.” This economic boom is what fuels the real estate market.

manufactured home

But what about the holidays?

Typically the number of homes sold decreases during the holidays for various reasons. However, there are many highly qualified Buyers who are still poised to buy. They have their money readily available and have been patiently waiting to pounce on the right property. The fact that there are fewer homes on the market means that more Buyers are focused on a smaller pool of homes to purchase every week.

But what about the elections?

I’ll preface this by saying that the following is not a political opinion. I’ve observed that while some people are still reeling from the election results, the Silicon Valley Real Estate Market continues to thrive. Some Buyers are taking advantage of the current traditional and social media distractions to scoop up homes while others are waiting on the sidelines. Meanwhile the real estate market moves on with or without them.

But what about interest rates?

I could address this by explaining the subtle difference between 10-year Bond Market and the Fed Funds Rate. Rather than getting into an economics discussion, it’s more useful to remember that current mortgage rates are still within the range of “historic lows.” Even if they go up slightly, it’s not going to pull the local real estate market down because there are simply too many Buyers that have large down payments. And, the cash buyers are still there, too. They may not be from Asia, but there’s still plenty of cash Buyers with lots of company stock. Slightly higher interest rates may actually favor these highly qualified Buyers because their cost of funds becomes less expensive on a relative basis.

Here’s The Bottom Line

Demand is UP because Jobs are UP and SUPPLY is tight because this is still Silicon Valley. This means that the local real estate prices are going to remain strong unless something catastrophic disrupts the current state of supply and demand.

Here are the 2 articles I reference in this article.

Strong Job Gains in October – High Demand

Lack of Homes to Buy – Low Supply

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