The market started shifting late last year. Our market, as crazy as it seems, is still governed by the Laws of Supply and Demand.
Buyers create the Demand for homes. Many of them buy homes by selling the stock granted to them by their employer. When the market is volatile, Buyers become more cautious because the value of the personal stock portfolio goes up and down with the market. This causes Buyers to become more conservative during the buying process.
This shift in mindset has an impact on the real estate market. 1-2 years ago, Buyers had a high sense of urgency. It felt like the Fear Of Missing Out (aka FOMO) was prevalent and Buyers had to “Buy NOW”. Because their stock portfolio was highly valued, they were willing and able to pay more than they initially intended so that they could win the house. If they didn’t win the house they were currently bidding on, the next home would be priced even higher because the real estate market ratcheted up each time a home sold.
Today, Buyers seem to be more patient and are adhering to their ‘wish list’ more than they had in the past. The Fear Of Missing Out has been replaced with the Fear Of Over Paying (aka FOOP). Today’s Buyer is willing to wait for the perfect house to come on the market. They are more reluctant to make trade-offs because the next house might be better suited for them – and at a similar price.
That being said, if a home checks off all the boxes on their wish list, the Buyers will make a strong offer to compete against other Buyers. Many Buyers are looking for similar homes in the same neighborhood with desirable schools. In general, homes that are presented as “move-in ready” are getting a lot of attention, too. Many Buyers do not have the time or desire to remodel or expand a home. Also, most of the good contractors are fully booked and are charging a lot for their services. This makes doing a major remodel less attractive than buying a finished house that may only require minor changes for aesthetic preferences.
On the Supply side in Los Altos, Sunnyvale, and Mountain View, the number of new listings of single family homes in the last quarter of 2018 was only 5% lower than the number of new listings in the same time period in 2017. In the first 2 months of 2019, we saw a 4% increase of new listings in 2019 compared to the same time period in 2018. In my opinion, these inventory fluctuations are within a typical range in a dynamic market.
However, the number of homes Buyers bought in the first 2 months of 2019 are down by 21%. This supports my position that Buyers are much more patient now and are willing to wait for the right house to come on the market. This explains why we’re still seeing multiple offers for some homes while others are taking longer to sell. Los Altos, Mountain View, and Sunnyvale are still highly desirable communities. When a well presented and marketed home hits the market, it draws a lot of attention from many Buyers. If the house isn’t marketed well and/or has characteristics that don’t work for every Buyer, then it will take longer to find the right Buyer for that house.
Where’s the market going?
The overall US economy is doing well. Interest rates remain relatively low – although our local real estate prices are not impacted by interest rates as much as prices in other areas of the country. Once we establish our footing in the new normal of the tech sector, I think we’ll see a return to a rising real estate market.
There is also a lot of chatter in the media about new IPO’s in 2019, which will create a whole new batch of high net worth tech employees which will drive Demand for the limited number of homes in this area. History has shown that this new influx of money will find its way into the real estate market. We’ve also seen how resilient Los Altos, Mountain View, and Sunnyvale are during market downturns (e.g. 2008 – 2010). These communities also bounce back quickly from downturns.
Click here to see a chart that shows how quickly the local recovered after the Dot.Com Crash (1999-2000) and the Financial Crisis (2008-2009).
Here’s a recent article from the Mercury News with more on this topic.
Here’s an article about the impact of the expected IPO’s in 2019.