How’s The Real Estate Market?
The question if get asked most frequently is “How’s the real estate market?” It used to be that everyone read the newspapers and got their somewhat distorted news from the headlines; now people get their news online and from multiple sources.
I hope I have earned the right for you to turn to SaratogaVoice.com when you want a balanced perspective on what’ss really happening in homes for sale in Silicon Valley, particularly in the west valley communities of Saratoga, Los Gatos, Monte Sereno, Campbell and surrounding San Jose.
I could tell you about the 100 shopper groups we had at a Saratoga open house in the Golden Triangle the weekend before last and the multiple offers we had. I could also point to the positive news today about the consumer confidence or that Case-Schiller says that home prices are rising in 14 metropolitan areas. But, I also need to tell you that because real estate is so localized and fragmented that one cannot truly speak accurately in generalities about what the market is doing – every neighborhood is different.
Let me start by writing about the economic environment we still find ourselves in (the good and the bad) and make some predictions for their impact on real estate in Silicon Valley in 2010:
•   The Economy – we are technically out of a recession with 2 quarters of positive GNP growth and into a mild and slow recovery, but as we all know, unemployment is still high, which will continue to be a problem throughout 2010. The economy is still fragile.
•   The stock market, which had phenomenal recovery during 2009 will have a 10% adjustment in value early in 2010 before it rebounds to 11,000.
•   Corporate Profits are up due to downsizing.
•   Unemployment is actually worse than the numbers indicate, because many jobs lost will not be replaced, due to globalization. It will take longer for those unemployed to find work ant those that do find jobs will likely be at income levels 20% below what they were making before.
•  Mortgage rates are very low and expected to remain relatively stable in 2010 with a slight uptick of ½-1%. There is a current window of opportunity now!
•  Retail Sales have recently been good at both ends of the spectrum (Walmart to Nordstrom).
• Corporate capital outlays for equipment have been positive.
•   The Federal deficit will drag down recovery, with $500 billion/year interest on our debt.
•  The value of the dollar has declined precipitously in the last three years as the Fed has not supported it, but printed money instead.
•   Commodity values are up relative to the declining dollar.
•   Politics – 2010 will be a watershed year politically with an ugly battle between those in favor of unrestrained free market capitalism and those seeking more security of a “hybrid†government- controlled economy. Uncertainty will limit risky business investments until corporations know the rules of the game.
•   Real Estate will be very different than the old model of the past. It is now very fragmented – in terms of the players, market dynamics and geographic diversity.
•   Sellers now include more banks, distressed situations and investors as well as traditional sellers.
•   Buyers in some areas now include investment funds, foreign investors as well as traditional family buyers.
•   Real Estate Investors – will continue to be important part of the market in the low end because rental properties actually cash flow positive as well as have future appreciation potential.
•   Appraisals will continue to be a problem, even if there are multiple offers. Buyers will have to come up with more cash if properties do not appraise due to 90 day past history, and some home sales will not stick.
•   Residential financing, although improving in 2010, will continue to be a big issue in getting deals closed. A niche market opportunity will be for astute buyers to closely follow homes with pending sales, whose deal does not hold together through the initial contingency period.
•  Refinancing will be problematic for owners who have 5 year ARM’s coming due in neighborhoods where values have dropped. This will cause a shift from owner-occupied to renter-occupied in some neighborhoods where owners have not choice but to default on their loan, but do not want to leave the neighborhood because of schools.
•  Banks – have dominion over many lower priced submarkets, now controlling both release of inventory they own and terms for buyers.
•  REO - purchases from banks will be influenced in 2010 by bulk sales to big investment funds from the east coast.
•   Commercial real estate – will be different too with vacancies going up and rents going down. As much as 20% of apartments will go into default in 2010 too. Funds, as buyers of groups of buildings will be a greater influence in 2010.
•  The low end of the home market will continue to see a firming up of prices as REO inventory is sold to multiple bidders.
. The middle residential market, up to $1.5 million in Silicon Valley, will be a sleeper market that comes alive in 2010, but buyers will still be looking for value, so sellers must be flexible to make a deal.
•   The higher-value residential market, from $2-5 million will still suffer as prices continue to erode 5-15%. Inability of upper end buyers to get loans as well as sparse 2010 corporate bonuses will put many buyers on hold.
•   The ultra luxury residential market, above $5 million will have more sellers than buyers, who will not make such a discretionary purchase unless the property is rare or exactly what they want.
•   Home values – for luxury Silicon Valley homes purchased at the 2006 peak will soften to 2002-2003 levels and in some cases to their1997-98 level.
If you really want to know about what’s happening in real estate in the specific neighborhoods you are interested in, send me an email and I will let you know what I think.
Rick Bonetti | Alain Pinel Realtors | 408-857-8800 | DRE #01237009
