Collins: Can a homebuyer find a home under $1M in today’s local market?
First-time homebuyers Mark and Amanda with Realtor Ben Frieden. Photo courtesy of Neil Collins.

    Lately, the media has reported extensively on a slowdown in housing sales, but what is really happening here in Santa Clara County? This month, I dig deeper into the market data and what it means for homebuyers.

    If we are experiencing a slowdown in housing sales, then a slowing market should lead to an increase in inventory and lower prices. Last August, according to MLS Listings, there were 1,112 single-family homes sold. At the same time this year, sales of single-family homes dropped to 794 units. That’s a decline of nearly 30%, which really does sound quite alarming.

    However, last year was an anomaly, with sales exceeding all expectations and making 2021 one of the hottest markets in a decade. Also last year, sellers received offers that averaged 9% over listing price. However, this August, the average offer was only 1% over the listing price. These data points are indications the market has realigned itself and prices have moderated. In fact, sales of single-family homes were up 23% in August compared to July.

    Condos and townhomes experienced a nearly 40% drop in sales year-over-year in August, but prices have remained fairly stable on a year-over-year basis. These current conditions provide an opportunity to step into homeownership for under $1 million. As of Sept. 7, there were 306 condos and townhomes in Santa Clara County on the market and available for sale. That is the largest amount since May of this year. In addition, there were 116 single-family homes listed for sale as well.

    Chart of Santa Clara County Properties Sold For Under $1 Million

    With housing affordability in Santa Clara County hovering around just 18-20%, properties listed at $1 million or less are critical housing stock for many first-time buyers. Now is an opportune time to take advantage of this lower-priced housing inventory.  Historical data tells us fewer people want to move after the school year has begun and even fewer want to move during the holidays. This means there will be less competition when making an offer on a property, which ultimately translates to better chances of that offer being accepted.

    These factors coming together might provide a small window for homebuyers to have substantial leverage. This leverage may allow for the freedom to negotiate on asking price or repairs. It may also allow for the opportunity to include contingencies, such as the sale of a current home, for example.

    I understand that rising interest rates are making some uneasy. But Dave Campagna, branch sales manager at Cross Country Mortgage says, “You want to marry the home, but you’re just dating the rate.” In other words, once you settle on a home you can see yourself living in for the next five to seven years, don’t be afraid to make that leap. If the higher interest rates are making buyers nervous, know that refinancing is always an option if the rates drop—which is exactly what the Mortgage Bankers Association is predicting for the next two years.

    See the association’s mortgage finance forecast for August below:Chart of Mortgage Finance Forecast - courtesy of Mortgage Bankers Association

    Lastly, do not assume there is no alternative to making a 20% downpayment to purchase a property. There are plenty of financing options available with as little as 3-5% down. The Housing Trust Silicon Valley administers the Empower Homebuyers Program for first-time homebuyers in Santa Clara County. If a homebuyer has at least 3% of a home’s purchase price for the downpayment, an Empower loan can provide 17% of the price—enabling a downpayment of 20%.

    Campagna also shares that new income limits will take effect in 2023 so a homebuyer can qualify for a bigger mortgage with a smaller downpayment.

    “The new limit is predicted to be $715,000 for the whole nation for conforming Fannie Mae loans,” he said. “The Bay Area receives a high balance limit at approximately 150% of that level or $1,072,500. Assuming HUD follows suit, as they have done in years past, that means the new FHA limit will match that for the Bay Area as well. HUD typically announces their number right around the Thanksgiving holiday.”

    Campagna says if this is the case, then an FHA loan with a minimum of 3.5% down and a loan amount of $1,072,500 would allow for a maximum purchase price of $1,111,398—while a Fannie Mae loan with a 5% downpayment minimum with the high balance limit of $1,072,500 would equate to a maximum purchase price of $1,128,947.  Homebuyers can use their own funds or get a gift from a family member to come up with the downpayment.

    If a homebuyer is wondering how much they really need for a downpayment, Anna Lisa Truong Lopez, a sales manager at Wells Fargo Home Mortgage, also shared a tremendous resource on what homebuyers need to know about purchasing a house. In addition, Wells Fargo provides low downpayment financing options, including 0% downpayment programs for military veterans.

    The bottom line is this—if you are in a financial position to take that leap into homeownership, now is the time. Real estate has always been one of the best longterm performers, even during economic uncertainty. During the next 90 days, homebuyers should see far less competition than what is predicted for the spring and should take advantage of these low downpayment programs.

    San José Spotlight columnist Neil Collins is CEO of the Santa Clara County Association of Realtors, a trade association representing more than 6,000 real estate professionals in Santa Clara County and surrounding areas. His column appears every fourth Thursday of the month. Contact Neil at [email protected] or follow @neilvcollins on Twitter.

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