It’s the Bay Area. It’s Palo Alto. It’s a real estate seller’s dream, but what about buyers who can’t afford to buy in Palo Alto? A recent article in Silicon Valley Business Journal calls the Bay Area an “anomaly” compared to the other parts of the country where prices continue to drop and buyers can choose, negotiate, and, simply, afford a house. “All of the houses I sold this year went 5 to 10 percent above asking with a minimum of two very strong offers each.” Yes, these are my exact words in an interview with the author of the article, and that percentage is actually getting higher, especially in the Peninsula. The article also mentions that “earlier this year, Comsa participated in a bid where a $1.4 million house in Palo Alto received 15 offers and sold for $1.8 million in cash. And it wasn’t move-in ready.” A true story, one of the many stories around here. While Palo Alto continues to be the “main attraction” for many buyers, areas such as Mountain View are attracting more and more people who like the great schools and the proximity to their jobs. I believe that Mountain View is the “new Palo Alto” and we continue to see more interest in some pockets of Mountain View, especially from buyers who are on a tighter budget and prefer to get a bit more for their money.
The Silicon Valley Business Journal editor asked about the “Facebook buyers” and I explained that “a lot of them are buying this year, in advance of Facebook’s IPO, very similar to how people invest in the stock market. Since there are around 100 houses on the market around Palo Alto, and a few hundred Facebook employees that may be looking for houses next year, the market will be very hot and interesting.”
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Low Home Inventory and High Demand – What to Do
“Bad news for Bay Area homebuyers. Good news for sellers?“ asks a recent Silicon Valley Business Journal article, talking about the lower inventory that all Bay Area agents – especially those of us working with clients in areas such as Palo Alto, Menlo Park, Los Altos, and Los Gatos – are familiar with these days. The article states that “new listings for single-family homes in Santa Clara County dropped 15 percent to 1,360 in March 2012 compared to March 2011,” and, in San Mateo County, “new listings for single-family homes slid 15 percent to 588 in March 2012 compared to the year prior.” That is the case for all nine San Francisco Bay Area counties. At the same time, the buyer demand has significantly increased, resulting in multiple offers and higher home prices.
I talked to Silicon Valley Business Journal about the fact that this situation makes both realtors and their clients work harder. We pay attention to every move in the areas we specialize in, talk to neighbors, friends, and parents at school. “A lot of agents representing buyers are spending a lot of time and effort on trying to snag properties before they are listed on MLS,” I was quoted saying, and I know that every agent with interested buyers hopes to find a way to snag that property without getting into a bidding war. Some buyers will not “play the game” and overbid, which means that it can take months until they find the right house. Keep in mind that a lot of first-time buyers will compete with “investors,” who have cash and can move quickly.
In some situations, the prospective buyer will move the search to a different area, because, for some areas with good schools and associated bidding wars (e.g. Cupertino), after a certain price, the buyer interest is not as high anymore. In those cases, entry-level houses are affected by bidding wars, and, if you can afford to go a bit higher, you enter a different price range where you won’t have too much competition.
Of course, we all go after what we think we can afford, but keep in mind that in your search you should be looking at the monthly payment (if you think you can afford it or not) rather than the final price of the house. If you are comfortable with that monthly payment, then you will probably be OK. If you are renting, a rent-versus-buy analysis would be helpful and we do that for our clients all the time before starting the house search process. I will follow up with a post on that in the upcoming weeks.