Real
Estate Market Conditions
San Francisco and South Bay Real Estate Market - History and a
Snapshot
Updated 4/1/2003
After
the area's worst recession, caused by defense cutbacks in the
late 1980's, average home prices dropped as much as 20% in the
period 1989-95. This was the first time prices went down, according
to old timers. Prices had gone up artificially high the previous
3 years, 1986-89, as it became apparent Hong Kong would revert
back to the control of mainland China.
The
value of single family homes for sale have been rising since 1995.
Sunnyvale was the first to experience the rise in values, just
as it was the first to do so ten years earlier in 1986. Cupertino,
Los Altos, Saratoga, Los Gatos and Palo Alto quickly followed
suit. Then values in all the better neighborhoods of the entire
Bay Area started going up, too. Through most of the period 1996-2002,
multiple offers everywhere within a one hour drive of the main
part of Silicon Vallley were the norm. A bid of 6% to 10% over
the asking price, and sometimes up to 20%, is usually what it
took to get a nice home in the more popular areas.
.
"Multiple-Offers" became a well known phrase around
here. If you were a potential buyer who did not have the time
to work on a fixer-upper, and you were looking at homes that were
close to work, fairly priced, clean, in a nice neighborhood, well-maintained
and in like-new condition, you could count on encountering multiple
offers. Unfortunately for buyers during those years, many other
buyers were competing for the same properties. When a buyer tried
to purchase one and got beat out by several higher offers, the
other buyers who also did not get the home would be competing
again on the next one that came on the market.
On
the other hand, homes needing some work, or located in a less
desireable areas, were likely to stay on the market for several
weeks. In a multiple offer market this is where one could look
to get value. With very little competition from other buyers,
most buyers could get one of these homes for less than the asking
price. About 95% of the inventory of homes on the market in the
cities served by us were in need of some TLC (tender loving care),
while only about 5% of homes could be called sharp homes. Sharp
homes don't stay on the market long enough to build up an inventory.
A good rule of thumb is that about 95% of all buyers will compete
for the same 5% of all the available homes on any given day. And
. . . . about 95% of the inventory is available to the 5% segment
of buyers who do not need a sharp home. In a multiple offer market
buyers should strive to be among the group of 5% of buyers wanting
the 95% of non-sharp homes.
Since
December 2002 multiple offers have dwindled to almost nothing.
It is a great time to be a buyer. Interest rates have not been
this low in over 40 years. Loan terms are very friendly to those
with little or no down payment, and even to those with slight
credit problems. Although the residential market remains strong
in Silicon Valley and surrounding areas, the inventory remains
high enough to discourage multiple offers. Average sales prices
remain steady, only slightly higher than a year ago by about 3%.
Most buyers who try are able to negotiate down the price asked
by sellers, a welcome relief from the many years of multiple offers
that began in 1995-96. Having only represented buyers for 8 years,
I can say from experience to potential home buyers sitting on
the sidelines that now is the time to do it.
