The headlines these days are quite ominous as they pertain to our current housing market. Residential sales are down substantially on a year-over-year basis, inventory is on the rise, and price reductions are becoming more common. What does this all mean for our local housing market here in Santa Clara County?
There are a couple of things to consider when conducting your own analysis. First, the traditional media typically uses data that is four to six weeks old. Second, our local housing market moves very quickly and performs much differently than throughout the rest of the state of California and even more differently than the national market.
So, let’s take a deep dive locally. Sales are definitely down from one year ago. However, it is important to note that last year was the “hottest” housing market in the last 12 years. With that said, our local housing market saw about a 30% decrease in June of this year compared to June of last year. And while price reductions are more prevalent than last year, sellers typically closed at 5.6% over asking. The fact that sellers are still receiving offers over asking reflects a resilient market.
So why does it feel so different? It’s really all about resetting expectations. There are plenty of examples of houses in the same neighborhood selling for less than they did at the beginning of the year. This is a direct result of record high inflation and rising interest rates that impact what buyers can afford. It is also reflective of more inventory coming on the market and putting downward pressure on listing prices.
I have mentioned supply and demand on several occasions and how it impacts housing prices. For the last several years, we experienced record high housing costs triggered by ultra-low inventory. Now, as the market cools a bit and more inventory is coming into the market, we see prices adjusting downward — but not “crashing.” This is nothing like 2008. The average days-on-market for a listing in June 2022 was still only 13 days.
“A correction is not a crash,” says Patrick Carlisle, Compass chief market analyst. “The precipitating factor in the 2008 crash was tens of millions of households were talked into home loans they couldn’t afford, forcing frantic sales during a recession. That simply does not apply today.”
From a seller’s perspective, if you are truly motivated to sell and move, then you should not be afraid to list your house. Selling today may take a little longer than your neighbor’s house took to sell last year, and it may even sell for a little less, but it will sell. Sellers can greatly increase their odds of success by properly preparing their homes for sale. Declutter your home, consider having it staged, add some fresh paint, and improve curb appeal with some fresh landscaping to make your house stand out from others. This is where you really need to rely on the advice of your realtor, as they understand the dynamics of the market.
While higher interest rates have negatively affected buying power, buyers have a lot more opportunities than they did a year ago. There is significantly more inventory than last year, so buyers will have a lot more properties to choose from and far less competition. The “all cash” buyers have largely subsided. It’s time to engage with your realtor and lender again on financing options.
There are also several new lending products to open the door to homeownership. Mortgage rates are still fairly low by historical standards and, if they drop again, you can always refinance. Contingent offers are also back in play. That means your offer can be contingent on your existing property selling.
What we are experiencing is a healthy market correction that had to happen. Properties will continue to appreciate, but on track with historical norms. The California Association of Realtors President Otto Catrina recently said, “California’s housing market continues to moderate from the frenzied levels seen in the past two years, which is creating favorable conditions for buyers who lost offers or sat out during the fiercely competitive market.”
The housing market for the immediate future will be more balanced, offering buyers plenty more opportunities than a year ago.
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.