Why Are Home Prices Increasing So Fast?

Many people are asking “What is the cause of the recent price increases?”  My answer , “A combination of factors.”

Here are the 6 major factors:

1-      Too many people are looking to buy, since the interest rate is historically low.

2-      Many people have already refinanced their homes at very low interest rates and don’t have any urge to move.

3-      The rents have skyrocketed.  Therefore, many people, who in the past would have sold their homes to upgrade to a larger home, or would have moved to a more upscale neighborhood, have chosen to not sell their homes. Instead they have taken the opportunity to rent their home.  They are seeing a positive cash flow, even after taking out equity in their home to buy a second home.

4-      During the last 5 years the building of new homes had halted. That didn’t help with the shortage of homes.

5-      Reverse mortgages are helping many elderly people to stay in their homes.  They are not downsizing their homes.

6-      High rents have attracted many foreign investors, who see Silicon Valley as a prime location for secure investment.

 

 

 

 

 

 

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California home prices rose 25 percent in the 12 months through November

This is a report from California Association of Realtor.

California home prices rose 25 percent in the 12 months through November, the most in eight years, as demand rose in expensive coastal areas, the state Realtors group said Tuesday.

The median price of an existing, single-family detached home was $349,300  last month, up from $279,910 a year earlier, the California  Association of Realtors said. The last time prices had a larger gain was in  June 2004, the Los Angeles-based group said.

In the Bay Area, the median home price was up 26 percent from a year earlier  at $588,800, though it fell 0.7 percent from October, the Realtors  group said.

In the Los Angeles metropolitan area, the median was $327,840 last month, up  22 percent from a year earlier and 2.9 percent from October.

California’s median price was driven up by a decline in sales in lower-priced  areas, and an increase in transactions involving mid- and higher-priced homes,  the Realtors said.

“The significant increase in price was due in part to the change in the mix  of sales,” said Leslie  Appleton-Young, the group’s chief economist. “Coastal markets, which tend to  have high-end properties, accounted for a larger share of total sales and led to  strong price gains overall.”

California homes sold at an annual pace of 518,290 last month, up 2.7 percent  from a year earlier, the association said. The figure is the total number of  properties that would be sold during 2012 should sales maintain their November  pace throughout the year. Sales dropped 4.9 percent from October.

“As we approach the new year, it is likely that sales and price will remain  solid moving forward,” Appleton-Young said.

The market’s strength is dependent upon both the economy and Congress  maintaining the federal mortgage-interest deduction for taxpayers,  she said.

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Wow, San Jose Homes, Silicon Valley Market Show Recession-Proof Stability

Here is a great analysis from MLSListings Services which serves Silicon Valley realtors.

SUNNYVALE, CA–(Marketwire – November 20, 2012) –  In the four years since the last great fiscal cliff, Silicon Valley has weathered its share of ups and downs like the rest of the nation. San Jose homes and neighboring markets show the characteristic drop and slow rise that mirrored stocks, jobs and other economic indicators. But as the industry is waiting for housing to return to “pre-recession highs,” and thoughts turn to the potential for rougher times ahead, a look farther back to the years just preceding the height of the market shows a more accurate assessment of the value of home investments.

Northern California’s Multiple Listing Service (MLS), MLSListings Inc, reviewed four residential Silicon Valley real estate markets from 2005 forward. On a macro level, median single family home prices have adjusted back to 2005 levels, but some neighborhoods within just a few miles show a far broader range of activity.

“Comparing San Jose real estate with the Los Gatos, Saratoga and Campbell real estate markets, it becomes evident that for the most part, we have returned to 2005 home value levels,” said James Harrison, president and CEO of MLSListings Inc. “This demonstrates the inherent ability of homes, like many investments, to weather short-term volatility, as long as a long-term strategy is in place. While the MLS is the most accurate and reliable source of data for any trustworthy housing analysis, it’s important to work with a licensed real estate professional with hyper-local knowledge and insight to compete in today’s market.”

With a current median sale price of $585,000 in October 2012, single family San Jose home prices have dropped a total of seven percent since January of 2005, when the median sale price was $630,000. In comparison, Campbell homes have dropped in price just one percent from the January 2005 median of $697,000, to $692,000, while homes in Los Gatos have increased eight percent from $1,380,000 in January 2005 to a median price of $1,487,500 in October 2012. And in Saratoga, median home prices have jumped 23 percent, to a median of $1,741,500 from $1,416,000 in January 2005.

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Dramatic Increase in California Foreclosure Cancellations

This is an interesting news from Foreclosureradar:

Dramatic Increase in California
Foreclosure Cancellations
October 2012 California foreclosure Cancellations were up 62.1 percent from the prior month, and 36.7 percent compared to last year. While this is not the first time Cancellations have spiked, this is the largest one-month increase since we started tracking foreclosures in September 2006. It seems likely that the increase is being driven by the Homeowner Bill of Rights legislation that goes into effect on January 1, 2013 and its provision to restrict the dual-tracking of foreclosures. Dual-tracking is the term applied to loans which are being considered for either a short sale or loan modification while simultaneously proceeding through the foreclosure process. Prior to January 1, lenders will have to cancel any foreclosure on a loan for which a short sale or loan modification is being considered, and it appears that process has likely already begun.October 2012 California Notice of Defaults was down 8.0 percent from the prior month, and down 48.9 percent compared to last year. October 2012 California Foreclosure Sales were up 9.3 percent from the prior month, but down 38.9 percent from the prior year.
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Menlo Park Real Estate Market Report

The Menlo Park real estate market didn’t go down in the last few years. The graphs below show the market trend during the last 12 months. The interesting point is the Median sale price of homes in Menlo Park. As you can see the median price of sold homes started to increase sharply as of February 2012 until June 1st 2012. After June 1st the median price of Sold homes in Menlo Park started dropping. Facebook went public on May 17th, 2012. According to this data from Market Insider, the median price of sold homes in Menlo Park dropped by 42% Since June 1st, 2012.

The Inventory trends for the Menlo Park since February 2012.

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Cambrian Park Real Estate Market Report

The Cambrian Park real estate market is making a comeback. The graphs below show the market trend during the last 12 months.   The interesting point is that the number of distressed properties has been reduced to a record low.

The Inventory trends for the 95124 Zip Code since February 2012.

 

The Cambrian park is not limited to the 95124 zip code. Parts of it are in 95008 and some areas are in 95118.  The graph below shows the trend of the median price for listed homes in the Cambrian Park neighborhood of San Jose since February 2012.

 

Last year I had 8 listings in the Cambrian Park area of San Jose. The going price per sq. ft. was $400.  This means the prices have increased by 6% during the last year.

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Purchasing a Home in a Seller’s Market

Since the middle of January 2012, the real estate market of Santa Clara and San Mateo Counties has changed from being a buyer’s market into a seller’s market.  This change of market has caused quite a lot of confusion for many buyers.  Many buyers haven’t come to accept the change in the market.  In many areas of Santa Clara and San Mateo counties, homes under $600K are getting 30 to 40 offers.  I still see some buyers, against my advice, making offers below the asking price.  Although I explain to them that the house has been in the market only for a few days, and that there will be multiple offers, the answer to this argument is “They will counter us!” The truth is that when a seller has many offers, they do NOT counter everyone.  Why should they? Once a house receives more than 10 offers, usually the seller has so many good choices that they don’t need to counter, or if they do counter only the top two or three offers will be receiving counter offer.

In this market you can make offers below the asking only if the house has been in the market for over 30 days at the offering price.   What I mean by “offering price” is very important to clarify. This is best described by what happened to a client of mine a couple of months ago.   One of my clients liked a house on a major street.  He was so determined to purchase the property below the asking price that he decided to wait for 30 days.  Just as the 20th day arrived, the asking price on the property was reduced by $10K.  I thought he should put in an offer.  He argued that “The house is on a major street and no one is going to buy it.  Let’s wait another 10 days!! He wanted to wait 10 more days to make a low-ball offer.  I had set an alert on the property, in order to keep an eye on it.  I called the listing agent, asking him to let me know if there was any activity. The listing agent informed me that they had 2 offers in hand and that they would be sending out counters that same day.  To my surprise that property sold for more than the original asking price.

Lessons learned are that in a seller’s market, you can seldom purchase a house below the asking price, unless the house is priced too high, or for some reason it is not appealing to anyone.  However, it is important to keep in mind that when you purchase a house below the market value (because the house is not appealing to everyone else), it means that when you want to sell it you have to sell it below the market value too.

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Decision Makers in the Seller’s Market

Since the middle of January 2012, the real estate market of Santa Clara and San Mateo Counties has changed from being a buyer’s market into a seller’s market.  This change of market has caused quite a lot of confusion for many buyers.  Many buyers haven’t come to accept the change in the market.  In many areas of Santa Clara and San Mateo counties homes below $600K are getting 30 to 40 offers.  Homes over $1M are getting 4 or 5 offers depending on the location.   I still see some buyers, against my advice, wanting to make offers below the asking price. I explain to them that the house has been on the market only for few days, and there will be multiple offers!  Their answer to this information often is, “They will counter us!” The truth is that when a seller has many offers, they do not counter everyone.  Why should they? Once a house receives more than 10 offers, the sellers usually have so many good choices that they don’t need to counter. If they do counter, only the top two or three offers will be receiving counter offers.  After being involved in many bidding wars, I have come to the conclusion that in a sellers’ market it is not actually the seller who decides who gets the house. It is the other buyers who decide who gets the house, without even knowing that they are really the final decision makers! Isn’t that interesting!!!

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All Real Estate is Local

I have no idea who said “All real estate is local”, but it is certainly true.  As an example, we keep on hearing in the news that the housing market nationwide is dropping.  Yet we see locally the prices of homes are beginning to move up.  Most homes are getting multiple offers within a few days of being in the market, whereas I understand that is not the case in most other states, or even in Southern California.

Another interesting observation I had is the problem of using out of state title companies.  Recently we refinanced the mortgage on our house. My loan broker decided to use an out of state title company. I thought that would be fine, after all basically all that title companies do is to follow instructions. Boy, wasn’t I wrong!  So much went wrong, that I never will be using another out of state title company.  My advice is to keep it local.

I have also heard many horror stories from people who have tried to get a mortgage on purchase from an out-of-state bank.   Some of the out-of-state banks don’t have electronic payments. You might end up sending your payments with Fed-Ex, which means each month you are spending $15 extra.  I learned that the hard way!

The worst case for none local real estate professionals are the out of area appraisers.  These appraisers don’t have to be from out of state, they just may come from another nearby county.  The mistakes they make could be deal-breakers. The unfortunate problem with appraisers is that you have no choice. The bank selects an appraiser company and then the company sends any appraiser that is available.  Recently I have seen appraisers coming from as far away as Monterey or Oakland to appraise  a South Bay property.   Although it is against the rules, I had my comparisons ready to feed to them to support the price we were at. They took my information.

MY conclusion is this “All Real Estate is Local!!”  It is best to keep it that way.

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Why should Home Sellers look to Realtors for guidance?

In my previous blog I explained the role I play when working with potential homeowners. The goals I have for my sellers are similar in that I encourage all my clients to explore options before making decisions.

Sellers have to be educated about market trends locally and nationally. I like to take my sellers to tour  homes that are already up for sale  so they have a realistic idea of what their home is worth. Ideally we  visit between ten and twelve homes on the market. I encourage this because I want  potential sellers to learn about the varying market trends before they decide put their home up for sale.

Sales price is important to most people and maximizing the net income on sale of a home is attainable if sellers are willing to make some upgrades.

Home improvements are the easiest way to maximize net profit, but they do come with expense.

Suppose a home that recently sold for a high price had a kitchen with granite counter tops and your home is the same size, but doesn’t have the updated kitchen with granite counter tops. If a seller wants their home to meet a similar asking price they must be willing to make the upgrade. I believe that in order for a seller to maximize net profit they must be willing to invest in home improvements. Otherwise they should expect the sales price to be less.

To sell a house at its best price  two to three months of preparation and repair are needed.  The house needs to be painted, leaks and faucets need to be fixed,   a good cleaning of  the house and yard should take place,  broken screens or windows should be repaired ,along with many other small projects to make the house more appealing .

Realtors get paid the big bucks because they should  be providing services that indicate to a seller what projects would create the most net gain and what would be a waste of money. If we as Realtors are doing our jobs effectively we are both educators and consultants. We are here to offer insight and support that will lead to a highly successful sale of a home.

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