Bifurcated market, part hot, part not

Right now the Silicon Valley real estate market is a bifurcated market, meaning that it’s more like there are two distinct realities at the same time. While this has always been true to some extent, it is far more pronounced now. Real estate agents quietly comment that “the market is weird”. Some homes are selling fast, others are languishing.

Slow and fast housing markets: what is going on?

The slower segment: a confidence issue

There’s a lot of uncertaintly that is eroding the confidence of some buyers: tech layoffs, political issues (the war, issues with H1B visas, tarriffs, and more), interest rates remaining stubbornly high, and, of course, the very high cost of housing. Home buyers often wonder if it’s the peak, and if it will be cheaper if they wait. These consumers may have 20% down or more, and they may be looking to purchase a home up to about $2 million and they plan to buy a fairly typical home in our area, nice but not in the luxury tier.

Also causing buyer uncertainty are homes that need work (in most price points). When consumers see older kitchens and baths, they may imagine that it costs 3-5 times the actual amount. And that may stop most home buyers from taking a serious look at a home for sale. A few years back, I read a study in which consumers were polled about remodeling, and at that time, it emerged that kitchens or baths that were 18 years old were considered in need of remodeling by most home buyers.

When home buyers don’t have confidence, for whatever reason, they don’t buy. Full stop. A significant portion of potential home buyers may feel that their jobs are threatened, or their immigration status is at risk, or that the interest rate that they are counting on may only get worse.

But it is not uniform, it’s a bifurcated market.

The faster segment: secure enough to forge ahead

Another segment of the home buying public has a tremendous amount of wealth in tech stocks (mostly). These consumers can weather a few months without a paycheck or perhaps they are in a two income household and really only need one income to be comfortable. They could buy their next house in cash, but want to leave their assets in the market. They are buying homes roughly between $2 and $5 million in the best school districts (or perhaps more expensive properties). This is the hotter segment of the bifurcated market.

Some of the fast moving houses may be modest in size, some much larger. Most of them are in turnkey condition, remodeled and updated in recent years. Buyers won’t need to worry about what it will take to bring the condition up to their standards. (Some high end buyers are looking for projects, but that is not most of them.)

Recently we had clients attempting to purchase an expensive, fairly turnkey house in a superior school district. The bidding went quite high and landed 28.7% over list price with 13 offers. We are not seeing much of that in lower priced homes unless someone has employed a price mirage (an artifically low list price to create a bidding war – it can be risky).

Bifurcated and confused market

Sometimes we have clients selling in the slower market (lower priced, perhaps the home needs updating) and wanting to purchase in the higher priced market (a move-up purchase and they want a recently remodeled home). That can be very frustrating for them.

What are the opportunities now?

Every real estate market is good for someone! Right now, this bifurcated market is good for home buyers willing to fix up a house to live in. (There are tons of flippers, I am not suggesting that people with day jobs attempt to compete with them.) Some houses sit on the market for a month or more, and if the issues are fixable, usually that’s a project worth considering.

Separately from the above discussion, the condo and townhouse market is generally soft. There are many HOA considerations (particularly around things like insurance, wooden stairs / balconies / walkways, reserve account funding, etc.), but in some cases the common interest development is rock solid and the units should be selling better than they are. Nationwide, condominiums and townhomes are having a rough time selling right now, but that could mean that a great home in one of these communities could be purchased at a great price.

Home sellers on the cooler end of the bifurcated market spectrum cannot change things like global worries over the war, visas, or interest rates. But sellers often can control their home’s condition and estabilishing an enticing list price. New paint and floorcovering can do wonders, as can replacing kitchen or bathroom counters and painting old wooden cabinets.

If home improvements are too much, then the price is what’s left to adjust.

Santa Clara County Real Estate Market (updated monthly, on our main website)

The San Jose Real Estate Market Analysis (updated monthly, on our main website)