My take on the latest market trends

Happy New Year Everybody,

I haven’t written in a while and now I am back. I always try to show an optimistic view of the real estate market. Last year was not a good year for real estate, in general. We however had a great year, focusing primarily on condos working for buyers and sellers. We also recently helped a buyer on the purchase of a large house in San Carlos.

The one bright spot, locally, was the high end of the market–$5m and above. In fact, there are even spec. builders in that market. It is good to be in the top 1%. This year things seem better. Unemployment is going down, the stock market survived intact after a lot of volatility, it is an election year–often a bullish sign. Rents are up 13% in SF and SJ, interest rates are at all time lows, and most houses in the Bay Area are priced below replacement costs–all bullish signs for rising home values.

There has never been a better time to buy. If you buy below comparable rents and below replacement costs the risks of buying are very low in many parts of the Bay Area. The fence sitters and permanent renters are still pessimistic. They worry about losing their job, having to move, earthquakes, loss of flexibility, home maintenance, loss of tax deductions and a million other ‘what ifs’?

For future buyers the old rules still apply. This is a good article to read: WSJ Online Buy when it works best for your own personal situation. Don’t buy something you can’t afford. Buy planning to stay for a minimum of 5 years. If you have to move, make sure the house will rent at a positive cash flow (or an affordable negative out flow), you’ll will feel safer if you do lose your job or have to relocate. Get a 30 year fixed loan for piece of mind. Buy a property that could have a potential in-law rental or guest cottage to rent out for extra income. Buy something new or remodeled if you are worried about maintenance.

I think the Real Estate bright spot in the coming year will be condos (including townhouses). There is shortage of SFH’s. In fact if they are in good shape and priced right, they get multiple offers. The cost difference between condos and SFH’s has reached an all time high. Low interest rates and high HOA fees have artificially driven down condo prices. Plus apartment rents are skyrocketing. In many cases condos are cheaper to buy than rent. Most first time buyers just can’t afford houses in the RBA (RealBayArea — the peninsula cities with schools that have API scores of over 900). Condos are the only choice for young families that want to be in the RBA. Condos are also going to attractive to the sellers that are downsizing and want to stay in the area. Remember the condo boom of the 1970’s?–many of the buyers were older. That trend will be echoed by the Baby Boomer generation. After all many can pay cash for a condo and not have to worry about rent increases.

There is talk, nationally, of selling many more REO’s in bulk to investors. This has been going on locally for 3 years. It will help us in the Bay Area by taking the low end properties off market and stabilizing the low end. There will be more rental housing available, but since there is so much rent demand, rents will still go up. In fact rents are so high that the big developers are now building rental units instead of condos. 4500 units will be built in San Mateo and Santa Clara counties(mostly in San Jose) in the next 3 years. They cost close to $400/sf and will rent for over $3/sf/month for these luxury apartments. The shortage of affordable housing will continue to drive up low end rents.