First some numbers: the Wall Street Journal reports that Silicon Valley added 30,000 new jobs last year and that unemployment in Silicon Valley dropped to 4%, down from a peak of 8% in 2002. The average salary here is up 4% from last year to $74,302 according to the same report.
The challenge with the market for people looking to buy a Silicon Valley home is that it's historically been extremely expensive. Even before the insanity of 2005, Silicon Valley real estate prices have always been challenging.
Here are some articles from over the years:
- Silicon Valley Cost of Living: Expensive (1998)
- "Housing prices... will deter job-seekers from relocating there" (1999)
- Residents Concerned About High Cost of Housing (2001)
- After the bust, "housing prices still too high" (2003)
- Silicon Valley's Housing Market Gets Scary (2004)
Is Silicon Valley real estate due for a correction? Here are four ways Silicon Valley real estate is correcting that may surprise you.
<!--more-->Paths to Correction
(1) Multiple offer scenarios are less brazen. In practice, while you still see multiple bids on properties that are over asking price, the asking price is set low enough to attract those offers. The unlimited upside actions of the past generally don't occur now.
(2) Weaker properties that are overpriced are now recognized as just that and tend to sit on the market. People won't just buy "any old crap" at any price anymore. And while the number of days on the market (DOM) is not a magic number, it is telling if you are careful.
(3) Contingencies are no longer deal killers. Contingency clauses that allow the buyer to back out of a deal within an agreed period have always been standard. But in the last couple years of Silicon Valley real estate, you've seen contingencies reduced or eliminated and "as-is" clauses added to real estate offers.
(4) Sellers are being more reasonable on pricing. According to RE InfoLink, the MLS system for Santa Clara and San Mateo counties, in December 2006, traditionally the slowest time of the year, the average house sold for 97.4% of the list price.
But, The Sky Could...
Just like everywhere else, prices of property in Silicon Valley can go down. (That's why 100% LTV loans are perceived as dangerous and why most people put down a 20% down payment --- it's the padding you use to weather real estate price drops.)
So if you're looking to flip a house in a year and make a killing, now is not the time. If you're a person looking to make a home, contact a real estate professional who will help you navigate the market.
But Silicon Valley real estate is directly tied to jobs and the number of highly-paid professionals that can afford to buy a home. It may take a little while for the money to come back into the real estate market, but --- with jobs --- it will come.
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