Silicon Valley Seasonality and the Impact on Supply and Demand

by George Nowicki

I’m always being asked what is going on with real estate here in Silicon Valley. “Is it a buyer’s market or a seller’s market?” “Are prices still going down or are they going up”. “I read all this bad news but then I hear about bidding wars for homes. What the real scoop”.

First off let me say there are no any quick and easy answers. Each area, in fact each neighborhood, is different and has been affected by short sales and REO’s, also known as “distressed properties” differently. The following statements are of a general, not specific nature, and are made to help you understand the big picture here in Silicon Valley. Again each home and area will be different and if you would like to understand how your specific home is affected, feel free to contact me at 408-892-3379 or via email at George@Nowicki.net.

Here in Silicon Valley (not nationwide), the low end, say under $600K is still selling like hot-cakes with multiple offers in most areas. Demand is still very high. That will most likely continue until interest rates go up.  Just not enough properties to go around for investors and first time buyers. Also we are seeing regular folks back in the market, buying up in many cases.

In 2010 only about 23-25% of the short sales ever close nationwide (which is actually a great improvement). The supply of REOs is extremely limited in this price range due to the fact that the banks just are not foreclosing. They just sit there as short sales. Limited supply. High Demand. Multi-offers. They are still bargains but not at spring 2009 prices.

A little background for you. Roughly Midyear 2007 was when we first started seeing a large number of short sales. They didn’t sell because no one knew what to do with them including lenders, agents, appraisers, asset management companies, banks, processing folks etc. Late Spring 2008 we started seeing REOs which were all the short sales that didn’t sell in 2007. The REOs were easy to close compared to short sales but at the low end there still was no money until FHA really stepped in for first time buyers. Investors got in the game again. Late 2008 thru 2009 the Short Sales started closing but at a really low close rate. Many became REOs which sold fast at crazy bargain prices. Processes, which were pretty crazy at times, were in place with the asset management companies. The seller, usually a asset management company, held all the cards, made all the rules, disclosed nothing and communicated little. Regardless, there were bargains to be had and the REO inventory was sold off to investors and first time buyers and even a few regular folks at extremely low prices.

Prices are slowly increasing and they are still selling with multiple offers. Some areas were affected by the ending of the $8000 tax credit and others were not. The midrange is still fairly robust for well priced homes but there has be a slight tick up in supply as is typical when school gets out. High end is still having a hard time getting loans, especially now with the reduced loan limits earlier this month.

Prices are going up. Single digit percentages in most areas here in Silicon Valley that were not as affected but short sales, if you track average sale price as oppose to median price. Simple supply and demand. People are looking backwards and realize that we are on the upswing away from the bottom and want Silicon Valley properties while they are still at low prices and money is cheap. The only factor holding back demand is employment and consumer confidence. Until that is resolved it most likely continue to be just small, single digit increases in most areas. Most people who bought last summer at bargain prices have already seen good upside gains at least as a percentage of the purchased price.

Summer historically shows an increase in inventory in most price ranges. I think that the low end will continue to sell fast. The midrange usually has a bump in inventory in May/June that sells off over the summer. Another bump up in inventory in mid-August thru mid-September as people, buyers, finish up with vacations and get really for back to school. Late September thru Thanksgiving more inventory gets sold off. Thanksgiving thru New Years new properties are not added and many owner occupied properties are taken off of the market. Mid-January the feeding frenzy starts again.

Again, this is based on years of historic trends and analysis with added assumptions for the current political and financial environment, supply and demand and analysis and input from many other sources. Each year is different as you know and assumptions constantly change or adjust as the employment, political and financial environment change.

This is only my very general opinion as of today based on the data available to me from various sources here in Silicon Valley, MLS data, articles and various meetings with experts in the field.