Collins: Tight inventory and higher rates are driving the local housing market

The housing market seems to be stuck in a fairly consistent pattern at the moment.

Demand is still very strong as a massive wave of millennial buyers enter the market. Unfortunately, inventory is at an all-time low, off nearly 40% from this time last year. The net result from this constricted inventory is higher housing prices and decreased affordability.

“With just under 1,300 homes for sale in Santa Clara County, demand outstripping supply is the defining characteristic of the real estate market in Santa Clara County,” Coldwell Banker Realty Broker Associate Quincy Virgilio said. “The influx of professionals moving to the area, drawn by the abundance of job opportunities, has created a persistent and significant demand for housing.”

Michelle Perry, also with Coldwell Banker Realty, said prices are going up with limited homes on the market.

“Multiple offers are evident, and we must prepare our buyers for that reality. They need to be prepared to put their best offer out there to compete. It’s important that we set the expectations with our buyers to get them prepared to compete for their future home,” she said. “I had a client who recently made an offer on a $1.3 million property in the Evergreen area of San Jose. On its fourth day on the market there were four offers. We submitted a very strong offer to the seller’s agent only to find out that we were now competing with eight other offers. This was the third property that my client got outbid on. This is the story we are seeing more and more over the last month for homes that are located in great neighborhoods and are move-in ready.”

Lisa Faria of Corcoran Icon Properties has seen a similarly hot market in Gilroy.

“I put an older home on the market in Gilroy with some very unique features and some not so desirable features,” she said. “It needed some work, and it was priced on the higher side of the area comps. We received multiple offers, and it sold over list price in five days with most contingencies removed.”

Debbie Giordano, owner of Master Brokers, says in Milpitas “tight inventory is definitely a factor, but so is access to top schools. Buyers with school age children are willing to pay a premium price so their children can attend these desirable schools.”

William Chea, 2023 president of the Santa Clara County Association of Realtors, says, “some of my buyers initially were expecting prices to drop, but with this tight inventory that’s just not the case.”

For homeowners, Virgilio said the situation has translated into impressive appreciation of property values, often outperforming other real estate markets.

“However, prospective buyers face considerable challenges due to the widening affordability gap,” Virgilio said.

Even with that lack of affordability, buyers are still seemingly clamoring to purchase homes despite the higher interest rates. Those interest rates are expected to drop next year, so many prospective buyers are betting on banking the appreciation this year and refinancing next year.

Buyers who had hoped to see a drop in prices have realized that the opposite is happening.

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.