What's Really Happening in the San Mateo & Santa Clara County Housing Market?
Higher interest rates, Low unemployment, Help Wanted signs, Empty store fronts, are all indicating to the passer by that the economy is confusing. " Residential sales are down substantially on a year-over-year basis, inventory is on the rise, and price reductions are becoming more common."
The reader should keep in mind that our real estate market moves differently than the rest of the United States and the rest of the State of California. The "media" which reports real estate is 4-6 weeks behind in their reports. Sort of like listening to a delayed broadcast of a baseball game while watching it live.
Sales are definitely down from June of last year some 30%. Last year was also the hottest housing market we have had in the past 12 years. So it is bound to have some pause. Still it appears there was about 5% over biding during the slow down. So things are not that bad.
What is really bothersome is the "Feeling" of this market environment. Like the run up the past 12 years in San Mateo and Santa Clara County have been dominated have been dominated by the FAANG Stocks. Quarterly Revenue growth was astronomical. With that growth has been a similar growth in stock values and employment. All have added to higher housing prices and a highly affluent class of employees. That has come to an end. Higher interest rates, higher inflation have attributed to lower sales and earnings, either or both, for FAANG. Layoffs in an industry that saw nothing but new hiring and a strong class of headhunters have started. Growth has given way to profits protection and eliminating costs. The overall stock market collapse has created the realization that "I should have sold" being a standard to, "honey, what happened to our retirement portfolio". Growth stocks are down, 60,70,80 %. A rally during this past earning quarter is being called a Bear Market Rally.
This all impacts the Housing Market. CRASH? This is not a crash, it is a correction from over zealous buyers and investors both flush with cash looking out the rear view mirror, without viewing the larger picture out the front window.
What it means for the buyer is that you have more time, more choices and less competition of all cash offers and over bids. To the sellers it means that you will not get the price your neighbor got 3, 6 or 12 months ago. The seller must realize the market will go back to a barter of back and forth offers and counter offers with financing and appraisal contingencies.
There should be a realization that the real estate agent does not make the market. The market is a "willing buyer and willing seller" agreeing with the help of the negotiating skills of a buyer's agent and a seller's agent. Homes do sell, it takes a little longer and a little less than past sales.
The U.S. gross domestic product contracted in the first quarter by 1.5%. The stock market will tumble again. inflation will remain high and be a continued reason for interest rates to go higher. Pending homes have fallen for six straight months. They are now below 2019 levels. The buyer now controls this market not the seller and the lack of inventory.
This will not be a straight forward recession. While job cuts in mortgage brokers and hiring freezes in the high tech industry exist, there are two job opening for each person unemployed. That means wages must go up. Wages went up 5.5% from a year ago. That did not match the 8% rise in the cost of living.
While recession usually means bad news for the commercial market, it is booming! Apartment building demand is high and the rental market investor in single family homes is high. Look at East Palo Alto single family residential market as an example of the single family rental market....OVER BIDS.
Warehouse demand is strong as retailers are looking for space for product to avoid supply side disruptions.
It all comes down to the $9 trillion that the FED has created and it still shows in the FED Balance sheet. Investors are looking for stability and do not want volatility. Have the Crypto players lost enough to put them back into sensible investing?
The real problem in real estate is the office market. SF Chronicle writes, "Downtown is Dying. Why our pandemic recovery is dead last in the nation". Heard on the Street in the Saturday/ Sunday Wall Street Journal writes, "The Future of Our Empty Downtowns. The reason? Over specialization in tech and finance. The employees can all work form home!
This is a 70's market. When the Modern Portfolio Theory of buying indexes turns out to be a loser. Individuals without experience of stock picking loose out. Real Estate will be the only answer to the build up in savings. That is why Commercial Apartment Buildings are in demand. 6.75% to +8% Cap Rate with rental increase is certainly a better choice than taking a shot on Meta's recovery. Maybe that is why the recent writing on why the Luxury High End in our area is at record levels....The Captains are not going down with the ship!
Todays summary of MLS Listings for San Mateo and Santa Clara Counties
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