Ok. Here is a recap of 2014 that provides the story of what is going on with the Cambrian San Jose real estate market and a lead-in to 2015. Charts and more charts are available at www.SiliconValleyMLS.info/cambrian-homes
First, home values had their second year of spectacular rise in 2014. Values are now well above (~28%) higher than the pre-financial crisis peak.
Here is how the above annual median sales price translates into the distribution of home price points. The sweet spot is between $600k and $1.0M for a single family residence (nothing under $500k). About 2/3 are 3-bedroom homes, most of the rest are 4-bedroom.
So what is going on? Supply and Demand. First, note that the supply of New Listings (the blue bars) has actually been pretty consistent over the past six years, however a good 20% below the pre-crisis levels. The “demand” has increased represented by the Avg DOM (Days On Market, the red line) which has fallen like a rock over the past three years. New listings are now selling, on average, within 20 days, which is about 1/2 of the time as in the pre-crisis period.
Now let’s look at the distribution of how long homes are on the market and how much they are selling over/under list price. First point, over a super majority (72%) sold within 14 days of being posted on the MLS. Secondly, a near super majority (65%) sold for over list price. This the summary chart representing a ~20% decline in the supply of New Listings combined with a significant increase in Buyer demand.
Did I just hear you say that this is depressing? Not really, just a market reality that you need to prepare for. The number of Closed Sales is ~5% below the 17-year average, so there are homes out there and Buyers are buying home. In this market, the “winning” buyers tend to be submitting no contingency offers, even if there is a loan. And you shouldn’t be surprised if you need to offer ~10% over the list price to make the short-list.
What do I expect in 2015? A continuation of the past two years. The monthly median sales price chart below provides some insight into the trend. A dramatic and steady increase in 2012 as the market recovery started to catch-up. Then in both 2013 and 2014 there was a jump in the price levels early in the year, which then held steady for the rest of the year. The two most likely scenarios are either 1) prices jump again in 2015, or 2) they hold steady at 2014 levels.
The way the new year is starting, I’m thinking that 2015 will be a repeat of 2014 with an increase in price levels in March and then stay there for the rest of the year. The sky-is-falling scenario is if interest rates jump-up dramatically, thereby dramatically reducing the number of qualified buyers, 2) the high-tech companies (Google, Facebook, Apple…) put a freeze on hiring, or 3) there is a major disaster (earthquake, terrorist…).
Summary – you need to do everything possible to make your offer as strong as possible prior to finding a home. If you wait, it will almost certainly be too late, because there are other buyers that didn’t wait.
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