South San Francisco Bay Residential Homes 2015- part 1

                                                       HP garage, Palo Alto, CA (after "Silicon Valley" by Shueh)

This is one of the most vibrant areas in the United States where the first sign of the economic recovery was noticed way earlier than other States. 1,000s of high technology companies and large firms are headquartered here. Some companies vanished during the Great Recession. The big players Apple, Google had no layoffs throughout out the Recession. iPhone development and strong cash flow from iTune, iPod kept all employees on the payroll. Endless Googles advertising clicks enable company to generate so much cash it had to hire more and buy more smaller companies. The Great Recession had a smaller impact on the area employment than Dot.com recession long forgotton.

The economy did take a toll in service, lending and real estate industries. There were appreciable foreclosures and many neighborhoods got hit. 

The neighborhoods where technocrats, lawyers lived were not associated with distressed properties to a large extend. As a result, home prices dropped and quickly restores the original high value as early as Q4 2010.

To give one a feel about Palo Alto lawyers, professors, technocrat managers city did not experience much hit. During Q1 2010 there were 0.4% home owners that were in default, by christmas it already lowered to 0.1%.  Attorneys, faculty, doctors and executives have stable jobs and ample saving to cover mortgage. 

Certain neighborhoods of south San Jose saw 2.5% same period by the same year end it dropped to 2.0% default rates. Currently, there are just a few homes in default and two homes held by the lenders. This part of San Jose suffered a -36% price erosion from peak year and exceeded previous historical high home prices (2006).

Through my research the primarily key parameter influencing home ownership is un-employment. Without a job it is hard to maintain a home. Interest rate changes have a less effect on affordability.  

San Francisco City 9.4% ('09)->3.3% (May '15)

San Mateo County  8.8 --->3.4%

Santa Clara County 11.3-->3.8%

San Jose City             12.5-->4.3%

Alameda County       11.3-->4.5%

Oakland                     16.5-->5.5%

All these are urban neighborhoods with decent jobs and salaries support home values. There are very few seasonal workers in agriculture. Manufacturing jobs has left the area some years ago. The exception is Tesla which assembles electric cars.

These home owners in south San Jose waited until Q1 2014 to start selling as it took 3 years to stabilize the home price. In 2015 the same neighborhood and Willow Glen had the highest number of home sellers to cash out their equity. There were trapped if not stuck for several years. Now they are willing to relocate. 

With ample job opportunities just about every company is hiring. Some recruit from out of states, universities and get H-1 visas people. Americans college students are not thrilled in hard code mind bogging career like programming. This hiring creates a shortage of renters as well as new home owners from out of the area. Low inventory has become a challenge as homes owners opt to stay put longer-10 years rather than 5 year popular a few years ago.

Silicon Valley north is a fairly new expansion. Most new companies are in San Francisco County instead of San Jose. Trulia, Twitter, Yelp, Lucas Films, Sega, Zynga, Electronic Arts, Wells Fargo, Price water House, Charles Schawb, and many new start ups are there. The landlords want old tenants out so they can charge outrageous rents.  Facebook, Linkedin and Google, Oracle, are almost butt to butt fighting for the same kind of well compensated workers with lots of perks. A college student makes $75K as an intern is common. 

People who can afford homes and recent arrivals both add to the demand for housing. There are few if any vacant land left leaving fewer home construction. The new homes are built on 2000-3000 sf if that much lot.  Unlike previous waves of immigrants who came to America empty hand, the ones from Asia today are the affluent. Without having much US credit history they are opt to pay cash or put 50+% down with a California branch of a foreign bank mortgage with no loan documentation requirement. Contrary to popular belief the amount of cash real estate transactions near top school neighborhoods is just ~10%.  90% homes there are still sold with a mortgage.

The inventory is measured in terms of month( basically listing minus last month solds).   In 2015 in the South Bay and SF Peninsula together with southern and lower San Francisco Bay (i.e. Santa Clara County, San Mateo as well as Alameda Counties) appears to have less inventory.  Whatever is out there gets quickly snatched up often in a few days.    

Below illustrates historical inventory for these 3 adjacent counties mentioned earlier. Each 0 scale on the vertical axis signifies 1-month of inventory. During early part of 2008 it had 6.5 month of inventory! Right now it is a mere 4 weeks of supply, hardly adequate.

Between 2.5-3 months (3-0 on the vertical month scale) of marketing time is a healthy normal market. However, this is not the case when the supply is as close as demand. 

Why is the inventory so low? 

Why people are not cashing out their long awaited equity move on with their plans? Are baby boomer staying in high cost of living cities and not wanting to enjoy their golden years in cheaper cities?

I have lumped these three counties namely San Mateo, Santa Clara and Alameda together. The total listings from 2013 through 2015 during the first of six months is tabulated below. There has been little total number of sellers. 

The number of homes for sale between 2014 and 2015 for first 6 months remains to be statistically insignificant (14,800 vs. 14,197).                               

Another measurement is the time it takes to market the listing getting into a contract (i.e. dom). Lately,  in these three counties it takes 19-20 days for a house/condo/town home/fix-upper to get into a contract with short closing time. Recalling it took over 100 days to move a home not long ago. Between 2014 and 2015 the days to get into a contract is not much different. But it feels this year is more competitive for those not used to the bidding game.        

Properties sold same period for the same region:

If one overlays the listing and solds the difference is the inventory. Each month it is a little different but the pattern repeats its self. At the beginning of the year there are fewer sellers and often there are more sales than listing. Start in spring people start selling and buyer chase the sellers. After school is back in session, people tend not to move and price is adjusted accordingly. According the inventory data this is the time not to look since the selections are few and far in between. Those need to get to their schools do not have a choice. 

Prices will continue to rise in markets where demand exceeds the supply. This area has less than 1 month of inventory and it was no better last year either.

Inventories outside of the San Francisco Bay have the steepest year-over-year decreases in Las Vegas-Henderson, NV (-37%); Key West, Fla. (-36%); Colorado Springs, Colo. (-36%); Palm Bay-Melbourne-Titusville, Fl (-35%); and Columbus, Ohio (-35%).

The housing outlook remains very rosy, particularly for sellers. Many housing markets are appreciating in two digits in value as homes sell faster. Some better neighborhoods condos now will fetch over one or two million dollars.You want a home then you show me you have two or three million dollars to spend. I will cover the home price and appreciation in part two of the research article.

Prepared: Sam Shueh, mba, cdpe, reopro, pe , Realty One Group, http://SiliconValleyRealtors.info/

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