The Problem are the Path: 2023
It seems to me the problems we experienced in 2022 are enough for us to endure, let alone, for another year. Statistically stock market declines of the 20% range , as the one we experienced in 2022, are not experienced the following year. Real Estate is a different asset in which to use that statistical analysis on.
We live in an area that is a Camelot. Irrespective of what happens in the world around us, Silicon Valley remains resilient and firm. The large advances in real estate we experienced from the beginning of the Pandemic, were not unexpected.
What we have to work with is the large amount of speculation that needs to be wrung out of our real estate market. The concept of Risk Free Rate of Return is the major measurement that will or should be used to determine purchases or investing.
2020 saw an enormous amount of money created in the money supply. Some $9 trillion the Federal Reserve Governors created and disbursed into the US Economy that also found into the World Economy. The result of which had the creation of large amounts of savings to support the Covid shut down. Money has an unusual affect on people. When one has more than normal there is a tendency to become frivolous in spending. The result was assets of all sorts became demand items as saving rate of return plummeted to zero or near zero.
When the shutdown was relaxed and we could once again could travel and go out to dinner and entertainment. A shortage of employees occurred and prices increased as the supply could not keep up with demand. In addition to product and services, investments went to historically unsustainable multiples. Investments were created that really, in my opinion, had no substance to them. The result was when interest rates began to rise in large multiples the optimism and aggressive buying came to a halt.
Risk Free Rate of Return went from Zero or near Zero to 3-4% or more. the result was that many Stock investors saw the need to "Take Profits". Then it became the term of Sell, but to Who, and prices came down to levels that the Risk Free Rate of Return did not match up to the potential profits. Stocks have a tendency to be very volatile. The Tech Stocks dropped 60-80% so fast it gave investors and owners of stock a severe case of acid indigestion! That decline does have an impact on our area where many residents are employed by or are dependent on work from employees of High Tech Companies. The lack of the feeling of wealth has a serious impact on the psyche.
Real Estate is a different type of asset. It does not have the volatility of stocks. It was great fun to talk at neighborhood parties on how the value of one's house has appreciated, but it didn't really make much difference other than it was chit chat not investment talk! Those who saw prices decline just took their homes off the market and are waiting to see what the future will bring.
Today the values of Silicon Valley Homes have seen some depreciation in value, 9% in past 9 months statistician's tell me. Homes still sell. Some with slight discounts and some with no discounts. Look at the fidelity reports I have added below and you will see most cites have a slight to strong seller's advantage.
What one does not see with the reports from Fidelity is the term "Concessions". This is when a home sells, but the buyer asks for concessions to pay list or near list. Concession usually have to do with repairs or replacements of items from the Disclosure Packet. These items would be a deck that is rotted and needs replacement, a Termite/Mold report that has a repair list with cost associated with it, appliance(s), as examples. Whatever the case, the concession and offer go as: offer to pay list subject to repairs completed at the close of escrow by the seller. The net result is the agent sells the property at list per the records. The result is the owner gets proceeds less the cost or repairs or replacements. The owner in this example is the responsible agent in the completion of the work, the permits and hiring of contractors. The buyer gets the home they want at the terms they want without the pain of permits, contractors and inspections.
| Housing Inventory Snapshot | December 31, 2022 | |||||||
| Average List Price | 30 Day Trend | Average Sold Price | 30 Day Trend | Average DOM: active/sold | 30 Day Trend | Number of Active Listings | 30 Day Trend | |
| Santa Clara County, CA | ||||||||
| Single Family | $1,678,668 | +0.97% | $1,586,979 | -1.10% | 90 / 28 | 26 / 3 | 302 | -243 |
| Luxury Single Family | $6,554,444 | +7.23% | $4,055,346 | +1.14% | 131 / 40 | 37 / 18 | 94 | -72 |
| Condo/Townhome | $803,021 | -3.64% | $816,322 | -2.41% | 81 / 32 | 18 / -4 | 145 | -98 |
| Luxury Condo/Townhome | $1,759,559 | +0.38% | $1,642,662 | +7.66% | 89 / 30 | 28 / 8 | 48 | -31 |
| San Mateo County, CA | ||||||||
| Single Family | $2,050,448 | +1.51% | $1,840,367 | -1.96% | 87 / 32 | 27 / 10 | 164 | -155 |
| Luxury Single Family | $10,310,065 | +8.98% | $6,851,000 | -13.15% | 165 / 69 | 49 / 40 | 52 | -51 |
| Condo/Townhome | $793,998 | -3.61% | $872,463 | +4.61% | 131 / 48 | 37 / 6 | 78 | -44 |
| Luxury Condo/Townhome | $1,762,331 | -0.13% | $1,719,167 | -1.18% | 80 / 20 | 11 / -37 | 21 | -16 |
| Santa Cruz County, CA | ||||||||
| Single Family | $1,199,309 | -3.98% | $1,168,563 | -2.68% | 98 / 34 | 19 / -1 | 119 | -38 |
| Luxury Single Family | $3,768,737 | -0.38% | $3,119,211 | +12.88% | 121 / 36 | 17 / 22 | 38 | -12 |
| Condo/Townhome | $700,000 | +0.58% | $751,237 | -9.34% | 131 / 34 | 8 / 19 | 17 | -4 |
| Monterey County, CA | ||||||||
| Single Family | $999,545 | +1.98% | $843,473 | -5.92% | 86 / 39 | 12 / -5 | 193 | -52 |
| Luxury Single Family | $7,413,998 | +4.21% | $4,730,301 | -46.50% | 138 / 51 | 9 / -54 | 64 | -11 |
| Condo/Townhome | $657,576 | -5.06% | $514,636 | -17.08% | 64 / 30 | 13 / -3 | 25 | -3 |
| Contra Costa County, CA | ||||||||
| Single Family | $799,955 | +2.61% | $775,895 | -1.64% | 72 / 44 | 14 / 10 | 422 | -300 |
| Luxury Single Family | $2,800,588 | +5.28% | $2,111,663 | +6.62% | 96 / 39 | 26 / 15 | 139 | -97 |
| Condo/Townhome | $494,120 | -6.72% | $487,030 | -0.79% | 66 / 46 | 13 / 14 | 113 | -76 |
| Luxury Condo/Townhome | $1,150,104 | -9.21% | $1,105,796 | -15.38% | 68 / 25 | 25 / 3 | 35 | -24 |
| Alameda County, CA | ||||||||
| Single Family | $884,104 | -7.97% | $966,237 | -6.43% | 71 / 34 | 14 / 4 | 309 | -279 |
| Luxury Single Family | $2,879,763 | +3.19% | $1,953,257 | -6.98% | 90 / 29 | 23 / 2 | 108 | -87 |
| Condo/Townhome | $623,451 | -1.84% | $586,579 | -6.10% | 70 / 50 | 8 / 12 | 140 | -122 |
| Luxury Condo/Townhome | $1,232,383 | +2.33% | $1,179,144 | +8.91% | 94 / 40 | 35 / 18 | 43 | -40 |
As the forecasts appear to indicate a continue weakness in home prices, it has been a very selective market as the Fidelity Reports will show. I expect real estate prices will be as selective by area too!.
Fix and Flippers still are active, they are also under pressure as the homes they are flipping are starter homes subject to loan approval. The forecasts are for the FED Fund Rate to go to 5% plus. If so, mortgage will go beyond 7%.
What affect will that have on home prices? I expect very little in the areas I have selected in the Fidelity Reports. Cash is King and negotiation will be open, with sellers more interested in moving and willing to negotiate with buyers.
HAPPY NEW!
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