Getting over Silicon Valley real estate sticker shock happens in stages.
First there is disbelief or denial. “It cannot be that bad – people are exaggerating.” That’s followed quickly by “I thought it was bad where I used to live!”
Then there may be outrage (anger is too mild a word): “Why would anyone pay that to live there?”
Next, a little bargaining: “What’s the work around? Are there any bank owned homes? How about something older – I don’t mind a 15 year old house…” (To us, that’s a young house, by the way.) “What about buying a lot and building?” Or the commute negotiation “I thought I had to be within 15 minutes, but I could go 30.” A typical commute might be 30 minutes in the morning, but 45 in the evening. Many people have worse than typical, though, as they want a bigger, nicer home, better schools, quieter location, etc.
Depression soon follows suit. This may be accompanied by “We just cannot do it” or “We are not willing to do that” (until they see that rents are $4000 for a smallish house in an only OK area and $6000 per month for a decent sized home in a good area.)
Acceptance comes at last. It may lead people to decide to go all in, bite the bullet, and buy locally. It may lead them to move way out of the immediate area and embrace an hourlong commute – or to take the Apple or Google bus to work, if applicable. It could lead them to move to Seattle, Orange County or somewhere a little less overwhelming in terms of housing costs.
Sometimes people think they are at “acceptance” as they write offers which are habitually 5-15% too low. In reality, they are actually still in the “bargaining” phase, hoping for a good deal amidst our raging seller’s market. That doesn’t usually happen, so writing a lot of unsuccessful offers frequently leads to depression (and sometimes blaming their agent for their offers not going through, even when it’s clear at closing that their offer price or terms were the issue).
How fast can you get to acceptance and write a realistic purchase offer? For people who could have bought 12 months ago but are still shopping now, that wait has cost them about 10% of their home price in many cases. For those looking 2 years, it’s easily double that, and in some cases prices are up a full 30%. That’s like setting a match to your entire down payment.
If you want to be a successful home buyer in this crazy Silicon Valley real estate market, you will need to get onboard quickly, because the longer you take to get to acceptance, the more expensive your final home will cost when the market isappreciating, as it has been for about 3 years now. Time is money and nowhere is that more true than in the San Jose, Silicon Valley, or South Bay real estate market.
Looking for more Silicon Valley real estate resources? Here are a few of my other sites, blogs, and market stats tooks:
popehandy.rereport.com – real estate statics for San Mateo County, Santa Clara County, and Santa Cruz County
popehandy.com – Silicon Valley real estate, Los Gatos real estate, info on many areas of the realty market in Santa Clara and San Mateo counties
SanJoseRealEstateLosGatosHomes.com – Santa Clara County real estate, special focus on San Jose areas of Almaden & Cambrian and also Los Gatos with info on the real estate market, neighborhoods, and more
LiveInLosGatosBlog – Los Gatos real estate, neighborhoods, events, businesses, parks. Many photos and neighborhood or subdivision profiles.
There is most always a big shock when folks relocate to Silicon Valley and start to learn how far their money goes – or doesn’t go – here. This has been the case for a very long time, since long before I got into the business 20 years ago. Prior to to looking online, you may hear that it’s bad, but you don’t really know what people are talking about until you get into a car with a Realtor and go see what $500,000 or a million or more will buy you here.
And now, too add to the already high home prices, the real estate market is overheated due to a severe inventory shortage of homes for sale in the San Jose and “South Bay” areas, too. Most properties are selling over list price – and that was high to start with, particularly for out of state or global buyers.
In most parts of the U.S., a half a million dollars will buy you a great home. Here, not so much. A million dollars will buy you a nice home in a decent area, but it won’t be fancy, and you’re unlikely to have a large lot unless your commute is huge and you’re on the outskirts of the valley. It’s more than a million to have a really nicely remodeled home with great schools; that price point seems to start at about 1.2 million in most parts of the valley. Have a look at the median and average sales prices for houses in Santa Clara County – this will give you a sense of how the market has been behaving, but also of the cost to purchase homes generally.
Santa Clara County (Silicon Valley – San Jose area) Prices and Sales Feb 2013
Each January, would-be home owners roll up their sleeves and make plans to buy a house, townhouse or condo. This year, like most, I’m getting contacted by Silicon Valley home buyers new to me as well as those who played with the idea in the past but ended up putting off the purchase. (Recently I learned that nationally, only about 50% of interested home buyers actually do purchase during the year that they think they will.)
Right now it is a very deep seller’s market in Santa Clara County as well as nearby areas of Silicon Valley. There is more demand than supply, the majority of “regular sale” properties under $ 1 million or so are getting multiple offers and the sales prices are averaging over the list price in almost all neighborhoods. The months supply of inventory is less than one month in Santa Clara County right now.
There are a lot of strategies you can employ when competing in multiple offer situations, but very few things can trump cash. A 20% down payment is considered a minimum for most of the valley. It is extremely difficult for a home buyer with FHA backed financing to buy a home in most cases.
This morning I looked at the sales of houses in San Jose over the last 30 days (meaning those which closed escrow). There were 368 houses that sold & closed. Of those 268 had conventional loans, 77 were all cash, 10 were FHA, 6 were conventional 1st and 2nd, 1 was a VA loan and none were “owner carry”. In other words, the vast majority had 20% down or more, and only a tiny handful came to the table with a small down payment.
That doesn’t mean that FHA buyers are never successful or that they aren’t trying. But the odds of success are about 3%.
Looking for another option? There are conventional 1st and second loans available – of course not many of those either but they are usually viewed more favorably than an FHA offer, especially if the house is older or needs work.
Another strategy may be to cosign with a relative who puts up a 2nd mortgage for you.
Nothing can really beat cash, and for most buyers, that means saving for years to pull together that elusive 20%. Up against an all cash bid, even 20% will look weak, but to increase your odds of success, 20% should be your minimum target in today’s market.
Frequently, people new to Silicon Valley and the San Jose area arrive from places where their last home was new construction, and they hope to find a brand new home here, too.
Unless you are looking to purchase a condominium or a townhome, though, it can be really challenging to find truly new homes for sale here. (There are tons of fabulous new condos in downtown San Jose, which is enjoying a great redevelopment period.)
For the most part, Silicon Valley had a post World War II housing boom that stretched primarily from the 50s into the 70s. By the 1980s, even, most of the open space was gone. Today we do have a few new patches of new homes “here and there”, but there aren’t many. Unfortunately, too, since most of the best land was built up long ago, some of the newest developments are in less desireable areas such as next to freeways.
For the Silicon Valley new home buyer, I want to suggest a couple of strategies: first, in addition to checking out whatever new homes are currently being built, consider homes that are younger than 20 years of age. Many of them are still in great shape. Some have already been remodeled! Another option is to look for the “fully remodeled” home. With the latter, you must be extra dilligent to make sure that the house has not just been gussied up to be be flipped, but is truly remodeled in areas you cannot see, such as the wiring and the pipes.
Please also read:
Myths and Misconceptions about Buying a New (or Newer) Home
Some younger neighborhoods:
Introducing a Beautiful Willow Glen Neighborhood, “The Willows”
The Almaden Winery Neighborhood of San Jose
If you’ve recently relocated to the San Jose area, you may still be getting your “sea legs” here. Perhaps you’re still learning your way around, or maybe trying to get a feel for our market. And very likely you are wondering, “should I buy a home now…or should I wait?”
There are no easy answers. Sweeping generalizations are often wrong in particular cases. I’ll explain.
Right now, if you want to buy a home in Saratoga, with Saratoga Schools and you require that the home be perfect (doesn’t need remodeling, doesn’t back to a busy road or have something else objectionable), and the price point is between one and two million dollars, you’ll have some competition. You’ll be in multiple offers if the home is priced appropriately.
On the other hand, if you want to buy an entry level condo in east San Jose or Morgan Hill, Gilroy or Santa Teresa, it truly is a buyer’s market. Home sellers aren’t giving away their pride & joy, but the market is definitely in your favor and you may well get a great deal.
Each situation is unique: you might need or highly value a short commute distance, or the very, very best schools, or a turnkey home. Or not. Depending on your circumstance, your budget, and your timeframe (if you buy, can you stay put for 3-5 years minimum?), this could be a great time for you to buy.
Some things to consider now – potential plusses:
Most often, November and December are wonderful months in which to purchase a home in Silicon Valley because sellers who market their home now are usually highly motivated. Inventory is lower, but prices are usually softer. When clients ask me, “when is the best time of the year to buy?” I usually tell them “November and December – but no promises for any given year”. Second best month is frequently August.
A big plus for this time of year involves your financing too. Since loans are really something you “purchase”, and the price is influenced by the ancient laws of supply and demand, getting a loan while everyone else is doing holiday things can be a boon to you. Loan rates frequently go up around Valentine’s Day. (I cannot predict that loan rates will go up or down, but historically the most favorable rates are often found at this time of year.)
Are there drawbacks to buying now? Sure. Inventory is restricted. In some price points and areas, that means that there may be multiple offers – even in this “normal market”. Homes may not show as well in winter as they might in spring, so you may have to use a little imagination if the backyard is not as cheerful as you might like to envision.
Overall, I would say for most buyers, this IS a good time to buy a home in Santa Clara County. But call me or email me and we can chat about your particular situation, which may change everything for you!
If you’d like specific information on the housing markets around the San Jose area, please visit my online Real Estate Report, which breaks down the stats and trends. It’s a tremendous amount of very useful data.
Wishing you and yours a joyful Thanksgiving.