New York Real Estate Market Takes Massive Hit!

 Two places I enjoyed living in my youth was New York and San Francisco, or "The City" as it was called.  

Lord Toynbee wrote the HISTORY REPEATS ITSELF.    So have no fear.  What we see happening will create opportunities   New York went Bankrupt and the US bailed them out with muni bonds referred to as Big Mac's  For Municipal Assitant Corporation.  New York cleaned up their act and it became the destination spot of the world.  Have no fear it will happen again.

The same is for San Francisco.  I came there in 1983 bought a flat in Pacific Heights out of foreclosure and fixed it up and 11 months later sold it for $110,000 more and bought in Woodside at same sales price of SF but $225,000 less than list.  The place in SF is worth more now than the place in Woodside.

New York is a repeat of last weeks article on SF: 56% fewer sales compare to a year ago, 30.8 months of supply and 11.3% discount from list.  West Chelsea built a high end boutique condo known as the Getty and slashed sales prices by 46%.  Adding to the "eye poppers", Chelsea Mansion sells for 59% less than asking, Michael Price's Upper East Side Townhouse sold for 52% less than asking...great neighborhood!!

Los Altos is having 10% cuts on a regular basis; as is Cupertino and the Willows, all matching a trend throughout the region of sales price cuts.

How about 251 Middlefield in Palo Alto cut 42.86%!  Sounds like NYC!

While we are seeing price cuts and movement out of the area the Census reports that New Residential Sales for July are +13.9%.   Looks like that movement out to affordable new homes is the trend.

Realtor.com the CheerLeader for the Real Estate Industry is beginning to be a doubter. Home Prices Hit a Record High.

Are We in a Bubble?

 

Home prices have defied logic, rising to record highs amid a pandemic and a recession. Is the housing market overheating—and is a correction looming?

Outside the area La Honda has gone from a Zillow forecast of a 6%+ increase in a year to 8.5% increase in the next 12 month period.  While the country goes higher, Redwood City forecasts a 1.2% increase in 12 months.

While we see list cuts and days on the market in our area, the California Realtors Association saw a 28% increase in July.  Further supporting my theory that they are moving east.

For all those looking for value, we have it now!  Start your search.  There is no bell that rings at the bottom of a market.  Find the home of your dreams, make an offer 10% under list and see what happens.

Sellers, you waited too long, but do not fear.  Don't try in put in a high list in hopes that you cn negotiate an offer.  They will not come it.  Price the property 10% under the closest market and hope for multiple offers.

By the Way...I would take it as a complement for a referral of any friend or relative.

Gary

Understanding the Market

 Some time ago I stated that the Stock Market and the Real Estate Market are related.  They move together on a longer term basis.  Looking back at that comment had me wondering why we are seeing a strong report on housing price increases nationally and how that relates to our Silicon Valley Market.

To summarise the inconsistencies I can say that we are in a perfect storm situation.  It is not a buyer's market nor a seller's market.  The perfect market where sale prices are stagnant and buyers do not fight with other buyers in over bidding the home of their choice.  Pushing prices too high puts transactions at risk as lenders and appraisers are under pressure from a risk standpoint and homes do not pass.  The seller is now faced with putting the home back on the market and having to deal with a property that must cut prices to sell.

In our present situation we are in a situation where there have been a record number of price cuts on a weekly basis.  Generally speaking for the Silicon Valley cities we follow to get 50 price cuts a week is extraordinary. Some reasons could be the agent does not want to place the home on the market for what the owner wants as a price, but agrees if the owner cuts the price in 30 days without action.  30 days later with no action it is cut to the price the agent wanted.  That situation is bad, it is a sign of weakness.  The better of the strategies should have been price it 10% under the object price and get the multiple offers over to the objective price. 

Let me give you an example of where the market is going over the next year per Zillow:

    Zip Code 94062 which is Woodside and parts of areas Redwood City in proximity in to Woodside the rate of increase is .8% from $2,135,439 to $2,168,312.

    95003 is Aptos on the coast.  1.8% increase from $947,856 to $953,083.

    94301 is Palo Alto.  +.3% from $3,698,486.  Last year the typical value was $3,718,799

    94020 is La Honda. +5.6%  1-year forecast from $821,575 to $875,718

    94027 is Atherton. +.4% from $6,236,092 to $6,388,640.

    95125 is the sought after Willow Glen market in San Jose.  +.75% increase from $1,295,356 to $1,318,068

Do you notice anything?  The out of the area markets are increasing.  La Honda is going to be up 6% and Aptos on the coast up 2%. The areas that were once the hot areas have minimal appreciation.  Buyers are seeking lower price homes away from the crowded urban areas.

I looked at a 10% price cut today in the hot area of Redwood City near San Carlos.  The promotion is the shops and restaurants of San Carlos.  Doubt that will be a draw as Covid has made it impossible to use them.

Do you have an explanation as to why home prices are increasing nationally and we have a stagnant home price situation?  While that is good for buyers and sellers there is something that must be observed and used is: where to in the following years, where to on rentals, where to on new developments?

The "Exchange " section of the weekend Wall Street Journal front page is 'THE SILICON VALLEY EXODUS".  I made mention of this in prior releases.  This time the WSJ has gotten the message.  

1.  96% increase in the number of listings in San Francisco in the first week of August.
2. 11% decline in the median rent for a 0ne-bedroom apartment in San Francisco in July compared to the prior month.
3. 42% of Bay Area Tech workers who said they would move to a less expensive city if their employer as them to work remotely full time.

"There are sign that the exodus is happening.  Silicon Valley the hub of innovation, may never be the same".  While it is too soon to measure the total outflow from the area it is already happening.  Rents are falling for the first time in years. Rents are the function that determine housing prices.  They call it a "cap ratio"  When rental income falls and interest rates remain the same the only offset is lower value of the asset.  Those assets are already under pressure.  Eviction and the shut down has affected more than the lower income wage earners.  It has seeped into the middle income earner as they are faced with the demand of lower rents or leave. the middle income wage earners can afford to leave the lower income have no resources to do so.  They want to work!  They are the same people +100 years ago who created what we have today.  They cannot go onto the streets as landlords have "For Rent" signs out until they get the message.  

The situation can be bleak if the movement is out of the state.  The loss of high income earners will deplete the income base that support our state and local governments.  I believe that is why the values outside the Valley are appreciating.  that is why realtors in Tahoe are saying there is not enough home for sale to meet demand.  Look at the local paper if they have reports of the Virus.  Tahoe and counties like El Dorado have minimal afflections and deaths.  I'd trade a hot summer in El dorado and Cold winter in Tahoe to being DEAD!  Wouldn't you?

Statistics and Fake News

The San Jose Mercury News recently wrote that the Bay Area home prices continue to rise, in the face of a pandemic.

WOW!  That was hard for me to fathom.  All I experienced are price cuts and selective demand.  The Ultra Luxury Market is soft. Sales occur below list and many tie the sale to a recent cut.  This Monday there were 56 price cuts in Woodside, Atherton, Palo Alto, Redwood City, Menlo Park and Portola Valley.  Palo Alto was the greatest hit with price cuts from 7-11%.  Two cities saw price to list increases.  they were Menlo Park and Los Altos.  The other took hits.

The article goes on to say that the "median" sales price for an existing home rose 3.4% from last years "median" of $925000!  WAIT A SECOND!  $925,000?  Okay, where in our Silicon Valley is there a home for sale for $925,000?  When they went into various counties the number became a bit more realistic.  San Mateo median is $1.65 million.  I live in Farm Hill Estates.  The only $1.65 million sold here was a tear down.

Further into the article the quote is homes sales fell 8%, condo's dropped 19% and condo prices fell 4.5% to $687,000.  If they can show me a condo in Menlo Park for that price, I WILL TAKE IT!

Now the article gets interesting to me.  Livermore had an upgraded 4 BR home with pool selling with 21 offers and a significant premium over the $1.15 million asking price.  That tells me something.  There was a time not too long ago I would suggest an east bay and central valley home to struggling buyers..."are you crazy, you know how hot it is there in the summer?  100 degrees!"  That certainly tells me that buyers do not want the high rices of the Valley and they do not want the Virus spread about in the Valley.

Moving out of the area?  Zillow predicted a 5.6% price increase in La Honda from $821,575 to $875,718.  Affordability and proximity rule with an hour to 101 down highway 84 to Woodside Road.  New owners leave the peace and tranquility of the Giant Redwoods, knowing they are their family is safe and healthy.

News papers are a passing industry.  More and more of us use the cloud for our news.  We are able to get feed back from communities using "neighbors" Facebook and other social media sites.  Newspapers rely on ads to survive.  The largest advertiser are the real estate related industries.  Real Estate agents put out large sums in ads promoting listings.  It would be bad business to hit the industry newspapers rely on with "bad press".

Rents and home sales will soon see inventory expansion.  How long can bars, restaurants, barber shops, hair salons, nail shops and their employees take economic hits until they walk away and move.  The large apartment complexes in Redwood city are still empty and there is a very, very large hole on El Camino Real in Menlo Park where once were Auto Sales.  The fact that Livermore is getting multiple offers is a clear indication that the move is out of the Bay Area.

The past history of our real estate economic cycle is dead.  Year end and beginning of the year dead Spring and fall hot.  The Pandemic, the Shelter in Place in shut down of businesses and communities are and will take near term and long term tolls.  

The Chinese curse..."may you live in a changing world" certainly has its place with us, doesn't it?