With median single-family home prices rising steadily month to month on the San Francisco Peninsula side of Silicon Valley, including San Mateo and Santa Clara counties, and higher than usual demand along with a slow-moving inventory, buyers are once again holding back signing on the dotted line.
This was the trend in 2013 and many brokers are calling 2014 through the first quarter of 2015 a repeat performance.
According to MLSListings in its latest market stats report for April, home prices are experiencing double digit increases, sales are decreasing and inventory is slowly moving up in some areas when comparing April 2014 to April 2013. Compared to April of last year, single-family residential median price levels are up 13 percent in San Mateo County and 14 percent in Santa Clara County. For the same period, sales are down 5 percent in Santa Clara County and 4 percent in San Mateo County.
“Due to the shortage of land and the strong demand for housing, the low inventory situation is not likely to change dramatically in the near future,” said Rainy Hake, executive vice president at Alain Pinel Realtors. “Also, current capital gains taxes do not encourage homeowners to sell or trade up.”
Dominic Nicoli, owner of The Nicoli Real Estate Group in the Silicon Valley enclave of Los Altos, said in his recent market update that there are three key reasons for the low home sales in the region: first, there are more people coming to Silicon Valley than there are leaving due to the growth in tech jobs; second, when the market is really strong, sellers tend to stay put as the idea of buying into a highly competitive market (with sometimes up to 10 offers per sale) is a “daunting prospect;” and third, with the historically low interest rates, after the tax breaks it is actually less expensive to own than it is to rent, making the whole process very frustrating for the tenant/buyer.
Hake agrees.”Many homeowners have refinanced their current homes with great rates and unless they are well-healed, they aren’t sure how they would be able to move up,” she said. “With little inventory on the market, it is hard to find a new home that is more advantageous than their current home.”
Hake said the bottom line is that although markets ebb and flow, it will only get more expensive and there is virtually no available land in the region to increase new housing inventory.
“There is a pent-up demand for household creation that has not yet translated into sales,” she said. “Because many graduating college students are forced to move home with their parents while they save up money to pay off growing student loan debt, this affects household creation as well as first-time home buyers’ ability to afford to own property.”
This trend is, of course, also occurring statewide, according to the latest home sales and price report by the California Association of Realtors. In a press release, CAR President Kevin Brown said that while the demand for housing in March was up from February, the market is “taking a hit from lower housing affordability compared to a year ago, which led to a decline in home sales from last year.
“Moreover,” Brown continued, “concerns over tighter lending standards and increased borrowing costs are also contributing factors to the sluggish market as they both negatively impact the bottom line of home buyers who obtain financing through mortgages.”
Though the Silicon Valley, like the rest of the U.S., is experiencing rising consumer confidence thanks to a recovering economy, the home market in the region, however, is just going through a “readjustment,” said Carole Rodoni, president of Bamboo Consulting and former president of Fox and Carskadon Real Estate, at a recent gathering of the Silicon Valley Association of Realtors. The millennials will continue to lead the resurgence, she said, since they are “attracted to edgy, funky, trendy communities, many of which are located in Silicon Valley.” She added that other buyers will include the affluent, the international buyers and even foreign governments like China, which is already buying homes and shopping centers.
Several government/political issues could also throw a wrench in the region’s growth, said Myron von Raesfeld, current president of the Santa Clara County Association of Realtors. On the federal legislative level, he said some “influential representatives” are considering a possible reduction or complete elimination of the Mortgage Interest Deduction (MID). And in California, legislative actions being considered are “tampering” with the state’s Proposition 13 property tax initiative and the possibility of eliminating the IRS Section 1031 Tax Deferred Exchange from the “tools that investors use when investing in real estate.”
Even though the average sale price of a single-family home in, for example, Santa Clara County was up 12.1 percent over last year to $1.174 million, people will continue to move into the region, said Alain Pinel’s Hake. “The Bay Area attracts people from all over the world and the quality of life can’t be compared,” she said. “And many large corporations enjoy being centered here. These employment opportunities coupled with the lifestyle make this one of the best places to live in the world.”