Market Trends Report

Silicon Valley Real Estate Market Trend Report: April 2017

Santa Clara County (SCC): Real Estate’s New Normal

Beginning in 2012, sales rose to normal levels, but inventory went down the drain.
There are three main reasons for the lack of inventory over the past five years, all of which seem intractable.
First, baby boomers aren’t moving. According to an AARP survey, 87% of baby boomers over the age of 65 want to stay in their homes. The main reason is to be near family and friends. Another reason is to avoid excess capital taxes. Selling a principal residence allows for either a $250K shield if single, or a $500K shield if married. Any gains over those amounts are taxed as capital gains. There are some ways around this, most of which involve setting up trusts. That is something you would need to discuss with your tax attorney and/or accountant.
Second, a significant number of the homes that were foreclosed on were bought by hedge funds and big private-equity groups who bought in bulk from the banks. Then, rather than flipping the homes, they rented them out to the families who had been foreclosed upon.
Frank Nothaft an economist with Corelogic, says in 2006 there were nine million single family houses in in the rental stock.  That number increased by three million in the following seven years, he said.
As a result, there were many fewer homes for sale, which helped drive up prices in markets around the country.
There is, as yet, no sign these investors will be putting those properties back on the market.
The third intractable reason for low inventory is builders aren’t building.
Home builders say it’s new regulations that are holding them back from filling the void. CNBC reports that such regulations may cost builders up to a quarter of the price of a new home, and a recent National Association of Home Builders study found regulatory costs have increased 29 percent in the past five years. The builders also say labor shortages are holding them back. Finally, prices for land and materials are rising and there is a lack of finished lots in neighborhoods where people want to live. These price constraints create an incentive for builders to construct fewer, and more expensive homes, because under such high demand, they can fetch higher prices for each home they do sell, CNBC reports.
Starting in 2012, Days of Inventory, or how long it would take to sell all the homes for sale at the current rate of home sales, has been below sixty-one days. That is far short of the Bay Area’s “balanced” market of ninety to one hundred and twenty days.
There you have it. The new normal: low inventory resulting in multiple offers and rising prices.

March 2017 Sales Statistics

Single-Family Homes

Year-Over-Year

  • Median home prices increased by 7.6% to $1,130,000 from $1,050,000.
  • The average home sales price rose by 5.6% to $1,403,090 from $1,328,750.
  • Home sales rose by 11.1% to 783 from 705.
  • Total inventory* fell 1% to 1,857 from 1,876.
  • Sales price vs. list price ratio fell by 0.6% to 104.7% from 105.3%.
  • The average days on market fell by 2.8% to 22 from 23.

Compared To Last Month

  • Median home prices improved by 2.8% to $1,130,000 from $1,099,000.
  • The average home sales price rose by 5.7% to $1,403,090 from $1,326,980.
  • Home sales up by 58.8% to 783 from 493.
  • Total inventory* increased 36.5% to 1,857 from 1,360.
  • Sales price vs. list price ratio increased by 1.0% to 104.7% from 103.7%.
  • The average days on market dropped by 21.3% to 22 from 28.

Condominiums

Year-Over-Year

  • Median condo prices increased by 3.0% to $697,500 from $677,000.
  • The average condo sales price rose by 7.8% to $785,311 from $728,524.
  • Condo sales rose by 2.6% to 356 from 347.
  • Total inventory* rose 5.5% to 687 from 651.
  • Sales price vs. list price ratio fell by 0.9% to 104.5% from 105.5%.
  • The average days on market rose by 4.6% to 18 from 18.

Compared To Last Month

  • Median condo prices improved by 2.4% to $697,500 from $681,000.
  • The average condo sales price rose by 5.8% to $785,311 from $742,069.
  • Condo sales up by 65.6% to 356 from 215.
  • Total inventory* increased 27.5% to 687 from 539.
  • Sales price vs. list price ratio increased by 1.0% to 104.5% from 103.4%.
  • The average days on market dropped by 11.8% to 18 from 21.

* Total inventory is active listings plus pending     listings. Active listings do not include pending.

More information is available in our on-line report at http://avi.rereport.com/market_reports

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Fed, Markets and Whipsaw Mortgage Rates (SCC & SMC)

Mar. 31, 2017 —Mortgage rates dipped a little further this week, settling close to the bottom of a range that has held throughout 2017, so far. However, we’re probably pretty near the bottom of the between-Fed-meetings valley for rates, now that we’re two weeks past the last central bank get-together.
The Fed’s steady outlook for policy was one reason mortgage rates retreated from a recent peak; disappointment over a Republican failure to even vote on a repeal of the Affordable Care Act was another, as it casts at least some doubts that President Trump’s agenda of tax and regulatory reform will come to pass, or at least come to pass anytime soon.
As well, with major stock indexes stocks hitting a record on several occasions in the first quarter, it is likely that at least some investors shifted funds out of equities and in to bonds in order to help lock in gains. Now that we’ve come to both the end of the month and the end of the quarter, odds favor at least some reallocation the other way in the days ahead.
Mortgage rates remain very favorable as the “spring homebuying season” kicks into full gear as April sets in. However, a full calendar of fresh inbound data along with the turn of the month and quarter probably sees us poised for a couple of basis point increase next week at least as far as the average conforming 30-year FRM as reported by Freddie Mac is concerned.
Meanwhile, we’ll be perusing the latest on both manufacturing and non-manufacturing business activity from the ISM, the March employment report, and plenty more. One potential market-mover is the minutes from the March Fed meeting; certainly, we already know what they did (lift rates) but perhaps we’re learn a little more about why opportunism, perhaps?) Should make for some good reading.

* Total inventory is active listings plus pending listings. Active listings do not include pending.

Call or email me if you have any questions.

For further details and a city-by-city breakdown statistics, go to http://avi.rereport.com/market_reports.

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Real estate related Articles

San Jose Mercury
Feb. 28. 2017
Bay Area home sales lose steam, but prices climb — a little
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Feb. 26. 2017
Sunnyvale: Tristar buys Apple leased offices for $290.7 million
Silicon Valley
Business Journal
Feb. 17. 2017
With Bay Area apartment rents headed for steep drop-off…
Avi UrbanHow to reduce your home loan interest payments. Read more
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The Silicon Valley 150 Index Corner

The Silicon Valley’s Real estate market is a derivative of the local economy, it prospers and withers depending on how well the local knowledge-based sector performs. The San Jose Mercury News tracks the largest 150 publicly traded companies headquartered in Silicon Valley via an index called the SV150, which you can lookup at www.mercurynews.com. Stocks are valued based on many criteria, but the most important criterion is a company’s future earnings. Therefore, I view the SV150 as a leading indicator for the Silicon Valley’s real estate market. This month’s annual index chart can be viewed below:

Investors Corner

THE S&P CORELOGIC CASE-SHILLER NATIONAL INDEX ANNUAL RETURN SETS 31-MONTH HIGH

NEW YORK, March 28, 2017 – S&P Dow Jones Indices today released the latest results for the S&P CoreLogic Case-Shiller Indices, the leading measure of U.S. home prices. Data released today for January 2017 shows that home prices continued their rise across the country over the last 12 months. More than 27 years of history for these data series is available, and can be accessed in full at goo.gl/qqOKwU

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San Mateo County (SMC): Real Estate’s New Normal

Beginning in 2012, sales rose to normal levels, but inventory went down the drain.
There are three main reasons for the lack of inventory over the past five years, all of which seem intractable.
First, baby boomers aren’t moving. According to an AARP survey, 87% of baby boomers over the age of 65 want to stay in their homes. The main reason is to be near family and friends. Another reason is to avoid excess capital taxes. Selling a principal residence allows for either a $250K shield if single, or a $500K shield if married. Any gains over those amounts are taxed as capital gains. There are some ways around this, most of which involve setting up trusts. That is something you would need to discuss with your tax attorney and/or accountant.
Second, a significant number of the homes that were foreclosed on were bought by hedge funds and big private-equity groups who bought in bulk from the banks. Then, rather than flipping the homes, they rented them out to the families who had been foreclosed upon.
Frank Nothaft an economist with Corelogic, says in 2006 there were nine million single family houses in in the rental stock.  That number increased by three million in the following seven years, he said.
As a result, there were many fewer homes for sale, which helped drive up prices in markets around the country.
There is, as yet, no sign these investors will be putting those properties back on the market.
The third intractable reason for low inventory is builders aren’t building.
Home builders say it’s new regulations that are holding them back from filling the void. CNBC reports that such regulations may cost builders up to a quarter of the price of a new home, and a recent National Association of Home Builders study found regulatory costs have increased 29 percent in the past five years. The builders also say labor shortages are holding them back. Finally, prices for land and materials are rising and there is a lack of finished lots in neighborhoods where people want to live. These price constraints create an incentive for builders to construct fewer, and more expensive homes, because under such high demand, they can fetch higher prices for each home they do sell, CNBC reports.
Starting in 2012, Days of Inventory, or how long it would take to sell all the homes for sale at the current rate of home sales, has been below sixty-one days. That is far short of the Bay Area’s “balanced” market of ninety to one hundred and twenty days.
There you have it. The new normal: low inventory resulting in multiple offers and rising prices.

March 2017 Sales Statistics

Single-Family Homes

Year-Over-Year

  • Median home prices increased by 12.9% to $1,355,000 from $1,200,000.
  • The average home sales price dropped by 5.1% to $1,563,450 from $1,647,640.
  • Home sales rose by 3.1% to 298 from 289.
  • Active listings rose 11.1% to 729 from 656.
  • Sales price vs. list price ratio rose by 0.4% to 106.8% from 106.3%.
  • The average days on market rose by 1.4% to 24 from 23.

Compared To Last Month

  • Median home prices improved by 0.2% to $1,355,000 from $1,352,000.
  • The average home sales price fell by 2.1% to $1,563,450 from $1,597,470.
  • Home sales up by 62.8% to 298 from 183.
  • Active listings increased 43.2% to 729 from 509.
  • Sales price vs. list price ratio increased by 1.6% to 106.8% from 105.1%.
  • The average days on market dropped by 22.6% to 24 from 30.

Condominiums

Year-Over-Year

  • Median home prices increased by 13.9% to $830,500 from $729,000.
  • The average home sales price rose by 16.5% to $896,530 from $769,286.
  • Home sales rose by 5.6% to 114 from 108.
  • Active listings rose 8.6% to 215 from 198.
  • Sales price vs. list price ratio fell by 1.2% to 104.6% from 105.9%.
  • The average days on market rose by 20.9% to 22 from 19.

Compared To Last Month

  • Median home prices improved by 9.6% to $830,500 from $757,500.
  • The average home sales price rose by 10.9% to $896,530 from $808,463.
  • Home sales up by 119.2% to 114 from 52.
  • Active listings increased 26.5% to 215 from 170.
  • Sales price vs. list price ratio increased by 1.1% to 104.6% from 103.5%.
  • The average days on market dropped by 16.9% to 22 from 27

* Total inventory is active listings plus pending listings. Active listings do not include pending.

You can get more information at: http://avi.rereport.com/market_reports

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Call or email me if you have any questions.

For further details and a city-by-city breakdown statistics, go to http://avi.rereport.com/market_reports.

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Looking to Downsize?

Keep Your Property Tax Base

Under Proposition 60, California homeowners 55 and older get a one-time chance to sell their primary residence and transfer its property-tax assessment to a new one, but the market value of the new home generally must be equal to or less than the market value of the old home.

Prop. 60 was designed to help longtime California homeowners who want to downsize but don’t want to give up the low property-tax assessment they enjoy in their existing home.

Under Proposition 13, homes are reassessed for property-tax purposes when there is a change in ownership or new construction. In between ownership changes, the assessed value can go up by an inflation rate not to exceed 2% a year. (Homeowners can get temporary reductions when property values go down.)

Prop. 60 lets homeowners 55 or older transfer their base-year value from an existing primary residence to a new primary residence, but there are restrictions.

The new home must be in the same county as the old one or, as Proposition 90 added, in one of eleven counties that accept transfers of base-year value from other counties. The eleven counties are: Alameda, El Dorado, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, Tuolumne and Ventura.

Also, the new home must be purchased or built within two years – before or after – the sale of the original property.

If the new house is purchased before the old house is sold, the market value of the new house on its purchase date cannot exceed 100% of the old home’s market value on the date it is sold.

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