‘Buyer Fatigue’ Setting Into Silicon Valley Real Estate Markets

Shutterstock: Silicon Valley starts feeling “buyer fatigue”

“Buyer fatigue” is setting into Silicon Valley real estate markets, according to Selma Hepp, PhD, chief economist at San Francisco-based Pacific Union International. “In my latest monthly analysis of Bay Area housing markets, the most interesting findings are in Silicon Valley. They include a notable drop in sales year over year, a decline in absorption rates and more inventory. It’s more pronounced in Silicon Valley since that area was very strong last year,” observes Hepp. “I also see budget constraints with buyers under the $3 million price range.”

Here’s a look at Hepp’s numbers: Sales of homes priced at less than $1 million fell at the fastest rate seen in two years, down by 28%, driven by 50% drops in San Mateo and Santa Clara counties. Sales of homes priced above $1 million continued to grow. However, June’s increase was the smallest seen in a year. Inventory dropped by 2%. “I’m basically seeing cracks in that Silicon Valley market,” Hepp said.

Don’t get too excited. The Bay Area remains unaffordable for many home buyers. According to Zillow, the median home value in San Francisco rang in at $1,354,100.  While Silicon Valley’s San Mateo and Santa Clara counties experienced some “buyer fatigue,” as Hepp calls it, only San Francisco had lower inventory levels across all price ranges in June.

Percentage-point changes in absorption rates by Bay Area County: June 2018 versus June 2017Pacific Union International

That key benchmark, absorption rates, (calculated as a ratio of sales to total inventory available that month) in Santa Clara and San Mateo Counties showed the highest decline from June 2017 to June 2018. The take-away: fewer homes were sold there in June 2018 compared to a year ago.

“We discuss these issues a lot in our weekly sales meetings,” confides Katharine Carroll, broker associate at Pacific Union International’s Palo Alto office. “I think it’s too early to say for certain Silicon Valley is hitting a slump. To me, the data shows our annual summer seasonal decline, especially in Palo Alto and Menlo Park. Many of the area’s venture capitalists vacation during the summer. Then sellers wait until September to list their homes. I see buyers taking a break because of that,” Carroll adds.

Absorption rates fell the most for homes priced below $1 million. “I think the slowing absorption rates in some areas may suggest that buyers are becoming fatigued after months of strong competition,” Hepp explains.

How many times can you make a highly competitive offer in a nerve-fraught bidding war only to lose out to another buyer? Nina Hatvany, San Francisco’s top residential agent in 2017 who specializes in luxury properties, sees this scenario often. “I had a property we listed on a Monday at $1,250,000. By Friday we had four offers. It went for $2.3 million. I had buyers who were very disappointed they did not get that property. Some buyers have been through this scenario several times,” Hatvany said.

Hepp’s advice for buyers from her economic perspective: “The reason I talk about buyer fatigue is 90% of homes are selling over asking price, I think buyers who have been unsuccessful in bidding on properties are taking a step back. They should look elsewhere geographically to expand the market for buying opportunities.” Good advice if you live in the land of bidding wars.

Article source: https://www.forbes.com/sites/ellenparis/2018/07/25/buyer-fatigue-setting-into-silicon-valley-real-estate-markets/

This entry was posted in SF Bay Area News and tagged . Bookmark the permalink.

Comments are closed.