Absorption Rate

One of the simplest ways of assessing the real estate market is to check the absorption rate, often called the months of inventory.

In short, it tells you the pace of home sales (beyond the simpler days on market). It informs you:

  • if you’re buying, whether or not you need to hurry or if you can take your time!
  • if you’re selling, this figure tells you what the odds are of your success in the next month. That could impact your selling strategy.

What is the months of inventory, or the absorption rate?

Water and a faucet - understanding the absorption rateThe absorption rate tells us how quickly the current inventory will be absorbed, or sold off, if sales continue at the same pace and no new inventory were to be added.

The absorption rate could be measured in days, weeks, months,  years, or decades – but the most common is the months of inventory. It’s really two data points in one: the available inventory and the number of sales in a particular period of time.

If this is hard to picture, consider a bathtub. If the tub is draining, how long will it take until the water is gone if the faucet is left off and if water continues to exit the tub at the same rate? That is the pace we are considering for homes for sale.

When homes are selling fast, in 30 days or less, often the data is described as days of inventory rather than weeks or months.

What is a fast absorption rate, and what does that mean for home sellers and buyers?

A balanced rate of sales suggests that neither home sellers or home buyers have a real advantage over the other. In the United States, anywhere from 4 – 6 months is considered balanced. Less than that is a seller’s market, and more than that is a buyer’s market. The lower the number, the hotter the market. 

In Silicon Valley, though, it’s almost never as high as 4 months – though it can and does happen sometimes.

For us, anything under 2 months is a hot market, and anything under 1 month is a super hot seller’s market.

Here’s a graph displaying the absorption rate for houses in Santa Clara County between January 2005 and now. The highest absorption rate was 14.2 in January 2008. It fell quickly from there with the next month at 12.4, then 10.1 in March, and eventually settling in at around 6-7 months of inventory for a period.

Absorption rate for Santa Clara County houses Jan 2005 - August 2022

(more…)

Moving to Silicon Valley: is it possible to get a house here that’s as nice as the one you currently own?

Can You Get the Same Home Relocating to Silicon Valley?“Can I buy the same home in Silicon Valley?”

I am frequently contacted by extremely bright, successful engineers or high tech professionals who are in large homes on large lots with great schools in less expensive areas of the country, or ocasionally outsisde of the country. They want to move here because Silicon Valley is the hub of innovation, a center for jobs in high-tech, our weather’s great, crime’s low, and there’s so much to do in this region. The housing costs here are extraordinarily high here, but often these professionals hope that the salaries are commensurately high such that they can replicate the home and lifestyle they are accustom to elsewhere, but in Silicon Valley. It doesn’t work that way.

Unless you’re relocating here from New York, Tokyo, or Paris (or somewhere equally astronomically priced), don’t expect the salary offered in Silicon Valley will to go as far here as it would elsewhere in the world. I’m sorry.

Relocation & Silicon Valley: Downgrade to Upgrade

Downgrade the House, Upgrade the Price…

Most relocating homeowners can expect a home downgrade and a higher price compared to what they are leaving behind. Yes, incomes are a little higher but not nearly enough to match the discrepancy in real estate prices. This is even more true with the astronomical acceleration of the market that we’ve seen in 2021 and in early 2022. Even without a wild seller’s market I tell people, as a rule of thumb, that when you move here you will pay twice as much and get half as much. (While salaries might be a little higher, they are not usually double what you’d make elsewhere.)

Sometimes I get the comment: “I don’t want to move to Silicon Valley and have my family’s lifestyle negatively impacted by having to live in a smaller house. I want the quality of life to go up, not down!”

That is completely understandable. People who move here don’t do it because of the housing. They do it for the location and the style of living that this area offers.

… to Upgrade the Location and Lifestyle!

We have the Pacific Ocean an hour or less away, San Francisco an hour away, dozens of wineries, theatre, museums, professional sports (go Sharks!), and world-reknown parks and trails. Shoveling snow? Never! San Jose enjoys 300 sunny days a year on average. If you love to be outdoors, you can make the most of it all year long here where the weather is subtropical. Our population is highly diverse and highly educated, crime is low, not to mention it’s the center of the global tech industry! There are a thousand reasons why the South Bay is probably a major upgrade… but it’s not an upgrade if you equivocate your house with your lifestyle.

So if you are considering a move to Silicon Valley, expect to pay more, get less home, and move into an amazing community in a beautiful pocket of the world.

Related Reading from this and my other blogs:

Market Reports for Three Silicon Valley Counties

What can you buy for $1 million in Silicon Valley?

Comparing cost of housing in West Valley communities from Palo Alto to Los Gatos to Blossom Valley: what will a 4 bedroom home cost?

 

Silicon Valley house for under $1 million

The Silicon Valley real estate market is notoriously expensive. It isn’t easy, but you can find a Silicon Valley house for under $1 million – if you are willing to drive a little further to those tech centers.

Tonight I did a quick search and found that it’s not too hard to find a 3 bedroom, 2 bath house with at least 1200 square feet in the south county and very scenic communities of Gilroy, San Martin, and Morgan Hill. Other possibilities are in the Santa Cruz or Los Gatos Mountains, south San Jose, Evergreen, and parts of east San Jose – among others. Here’s a map showing houses recently sold with the above listed criteria.

Most likely areas for finding a Silicon Valley house for under $1 million

 

 Where to find a house for under 1 million

 

When I loosened the criteria (such as showing all bedrooms), more homes and areas opened up, but some were very small, or needed a lot of repairs, or were in a 100 year flood plain, or had other issues.

The bottom line is that if your budget is $1 million or less, there are places that are likely to work – but probably won’t be in Sunnyvale, Cupertino, Palo Alto, or Santa Clara.

Want a shorter commute? You might want to consider looking at condos and townhomes for the more “close in” location.

 

How’s the Silicon Valley real estate market?

Aerial vew over San Jose looking east - photo by Mary Pope-Handy

Aerial vew over San Jose looking east – photo by Mary Pope-Handy

What’s going on with the Silicon Valley real estate market? Is it as crazy as ever with multiple offers, overbids, and few or no contingencies?  Today we’ll consider the regional view, aka The Big Picture, to provide a sense of what is going on. For info on smaller areas or districts, please head over to my main blog, the Valley Of Heart’s Delight Blog – SanJoseRealEstateLosGatosHomes.com. There cities, towns, and districts are looked at in depth.

Seasonal Patterns in Silicon Valley

The quietest time (number of sales, traffic, etc.) and lowest prices in the real estate market tend to fall in January, or sometimes in December.  As with most years, this time around January had the lowest prices.

Most years, we see strong buyer activity with multiple offers early in the year – often emerging as a pattern by the middle of February.

Right now, some home sellers have not accepted that home prices have dropped 20% or so since the peak last spring (more or less depending on location, pricing tier, school districts, property condition, and so on). Those properties are not moving quickly.

For sellers who understand the current market conditions and have priced appropriately, home buyers are flocking and multiple offers are back – in force.

In short, there’s a kind of duality right now, so it’s a weird time. Homes that were sitting on the market but get a price reduction may linger awhile, and then sell with multiple offers. This catches buyers and their Realtors off guard.

To provide regional Silicon Valley market conditions, today I’ll post info on  the three counties (San Mateo, Santa Clara, and Santa Cruz).

In terms of expense, San Mateo is the most costly of these 3, and overall it becomes less expensive in Santa Clara County, then less expensive still in Santa Cruz County.  Alameda County has a little of Silicon Valley, but that area is in a  different MLS system so is not part of this analysis.

Next, a look at sale prices an market conditions for single family homes and condominiums / townhomes by county.

What does it cost to buy a house or condo in Silicon Valley?

In Santa Clara County (home to Palo Alto, Cupertino, Sunnyvale, Mountain View, San Jose, and my own Los Gatos), the average sale price is $1,413,000 and the median sale price $1,185,000 – quite a bit lower than last spring.

Santa Clara County
http://rereport.com/scc/print/Mary.PopeHandySCC.pdf

Please click to enlarge:

Santa Clara County trends at a glance

 

For condominiums and townhouses, of course, it is a more affordable.

Santa Clara County condo trends at a glance

 

In San Mateo County (home to Redwood Shores, Foster City, Menlo Park, San Mateo), the average sale price is about $1.78 million for houses recently sold.  The median is a little lower at $1.425 million. (more…)

Get weekly market reports by zip code and / or monthly newsletters for the area

One of the tools I use in my Silicon Valley real estate practice is Altos Research. My subscription, which generates reports on mls data of homes for sale weekly, covers all the zip codes of Santa Clara County. The market reports by zip code can be a real wealth of information for home buyers trying to figure out how much home they can get for their money as the report breaks down each zip code area listings by price quartiles and provides the average home and lot size, among other items, in each bracket.

Here’s one part of this week’s report for single family homes in 95032

Profile of homes for sale by price quartile inLos Gatos CA 95032

Profile of homes for sale by price quartile in 95032 (Los Gatos CA)

This is a really helpful way to grasp qucikly how much it will likely cost to get you into a certain sized home.  It also provides a sense whether your particular price point is near the bottom or top of the market – or if it’s possible at all.  Want to buy a home here but the budget is $1 million or less? The data above reveals that this is unlikely in a house.  But perhaps a condo or townhouse might work.

Next, please notice the days on market by pricing tier.  It’s a lot hotter of a market in the lowest priced houses than it is in the highest.

It also helps home sellers to understand what part of their local market is hot or cold (if any).

There are many other elements included in the report.  The main summary of “how’s the market?” is found in the upper right corner.  Below is the example from the same Los Gatos 95032 report cited above:

 

Altos Research Report for Los Gatos 95032

Altos Research Report for Los Gatos 95032

The Altos data is strictly by town or zip code, so school districts won’t be covered – and here they are a major driver on home values. Even so, this is a great starting point and a way to get the big picture painlessly.

Please sign up and get the monthly newsletter, too!

The report is free to you – please sign up below to get the market reports by zip code emailed to you automatically each week.   Yo

But wait, there’s MORE!  Two monthly newsletter options, too!!

I also offer a couple of monthly newsletter than you can sign up to receive.  The Silicon Valley RE Report comes out between the 5th and 10th of each month, and that site automatically generates an update for  particular addresses or areas, depending on what someone signs up for.  If interested, go to http://popehandy.rereport.com/market_reports and navigate to the report you want (by city, the county, or part of San Jose, for instance) and sign up to receive updates by clicking on the “Subscribe to report” button.

Additionally, once a month I send out a personalized newsletter via Mail Chimp that includes some data from the RE Report as well as other information, such as stats I’ve pulled directly from the MLS or what I’m hearing about market conditions at office meetings, or changes to the purchase contract or disclosure paperwork, etc. You can see a sample with my May 5, 2018 newsletter and also view the past mailings (upper left side “Past Issues”)  & sign up if you like to get these each month. The sign up button is on the upper left side and simply says “subscribe”.  There will be a little overlap with the RE Report, but it will provide info that isn’t available on that site.

How is home buying in Silicon Valley different from other places?

Home buying in Silicon ValleyIf you want to buy a Silicon Valley home and you’re coming from outside of the area, a few things are done differently here. Rather than give a lengthy explanation, I’ll just provide a quick list of things which are different from other parts of California, the U.S. or perhaps the world.

1.) The escrow account, where money is held and disbursed by a neutral third party, is ordinarily with a title company in Silicon Valley and the San Francisco Bay Area generally. In CA it’s legal for real estate brokers to have the escrow account, but that is not the custom here. By contrast, in southern Calif., there are separate companies which often do the escrow work or a real estate broker may handle the funds, called trust funds.

2.) Santa Clara County is a “seller pay county” by tradition when it comes to the escrow fee and who pays the owner’s policy of title insurance.  (Most of California is either buyer pay or split 50/50. Also, SCC is where San Jose and much of Silicon Valley is located.)

3.) Because it’s a “seller pay” county, the seller or the listing agent (the seller’s real estate agent) normally chooses the title company. Most of the time, the home owners do not have a preference and don’t  know anyone working at the nearby title companies, so usually the listing agent suggests which one to utilize. If you purchase the property with a loan, you will need to buy lender’s insurance, too – and that’s a buyer cost.

4.) While in many east coast states an attorney is involved with the home buying and selling process, here lawyers are seldom involved with real estate sales – unless there is a big problem.

5.) Surveys are not usually part of the transaction here, with exceptions if there are serious doubts about the property boundaries.

6.) Buyers are provided information on natural hazards, and usually also known environmental hazards and area tax liabilities, in most cases via a professional disclosure company such as JCP Disclosures. Things such as 100 year flood plains, liquifaction zones, earthquake fault lines, underground water contamination will be revealed, if known, in most cases.

7.) In some parts of the world, buyers do not have their own real estate professionals for guidance and advocacy, but here they do. Most of the time, in the San Jose and Peninsula area buyers have their own real estate agent working on their behalf. Usually the buyers’ agents are paid by the sellers – but they do not represent the sellers. Dual agency is legal in California as long as it is disclosed (and dual agency can mean either the same person or brokerage).

8.) In recent years, it has become the norm to get pre-approved with a lender or bank prior to writing a purchase offer on a house, condo or other home. (If you meet with a Realtor, getting you set up with a reputable lender will be one of the first things he or she asks you to do.) Also it’s pretty normal to have to provide “proof of funds” to demonstrate that you have the down payment available. Sometimes our international clients are surprised at the documentation required here, so it’s good if you are aware of it upfront.

9.) It usually takes 30-45 days to close escrow on a property here (from the time the sellers accept your contract to the time you actually own it).

 

Finally, it should be noted that the cost of housing in Silicon Valley is truly exorbitant. Most people know that Silicon Valley houses are very expensive, but until they get out and see what things cost, they really don’t understand how extreme it is. Often I tell people to expect to pay twice as much and to get half as much. Unless you are coming from a pricey locale, such as London, Tokyo, Paris, Manhattan or Boston, you may still find yourself in “sticker shock.” A half million dollars buys a fairly small, modest home here, in an average area. A million dollars is better – you can get into a better area and better house.  The “luxury market” starts somewhere between 1.5 and 2.5 million, depending on which area you’re considering.