The evidence is everywhere. Realtors are discussing it on social media, on blog posts, in newspaper comment streams, at open houses and broker meetings. There is a severe lack of available housing inventory in Santa Clara County which is causing multiple offers on almost every home in the mid-level price range in San Jose. Anecdotal stories of homes with 30 offers, going for 4-5% over asking price are common. And who’s buying and driving up those prices? Investors spurred on by the need for housing in the rental market. That leaves slim pickings for first time homebuyers who don’t have all cash to entice the home seller. Here are the most important forces currently at work in this market:
Factors Impacting the RE Market
Inventory is at its lowest level since December 2004, and at only 20% of its peak in July 2008
Low foreclosure level -Banks are tied up with litigation on the Federal level and have not been doling out the stock of foreclosed homes they have been sitting on, meaning less inventory.
Better employment situation-Employment means ability to pay for a mortgage, spurring confidence in the housing market. The tech sector employment boom and IPOs in Silicon Valley is resulting into more income for people to buy homes.
Pent-up demand-Over the past 4 years during and immediately after the recession, there has been very little home buying activity. But of course, people are still getting married, having children and seniors want to downsize. This pent up demand is a major factor in the demographic who is competing for homes right now.
Rush for gold by investors-With so many displaced homeowners who were involved in a foreclosure or short sale, along with transient new employees in the Bay Area, rental properties are hot commodities. That combined with low housing prices, investors see gold right now with immediate return on investment in rising rental prices and strong demand.
Low mortgage rates-Potential homebuyers are listening to the message of “now is the time to buy with historic low mortgage rates”. With mortgage rates hovering at 4%, people can borrow money at a very affordable and attractive rate right now.
How can you compete?
Bay Area REALTOR, Dawn O’Neal, Realty World Executive Advantage offers this advice for home buyers, “With all cash offers the competition is fierce. The best thing first time buyers can do is submit proof of current funds available with their offer and submit a professionally prepared offer so they are viewed as ready, willing and able to perform a purchase and just keep trying!”
San Jose REALTOR, Jorge Zegarra, Intero Real Estate Services, said, “It is very hard to compete if you have a buyer with 3.5, 5 or even 10 % down when you face a competition with 40-50 % down or all cash buyers. Buyers need to be ready with their loan, all their documentation in place, with a very strong Pre-Approval letter and a cover letter that explains to the sellers why they really want to buy that house.”
From a mortgage lender standpoint, we are consistently giving our clients the same advice. You have to be prepared to show sellers you are serious and that is with a pre-approval letter. Connecting with a mortgage professional to see how much you can afford to purchase a home is key to competing.
When will it end?
“As far as when this will be over – with the prediction of more foreclosures and many more short sales coming? It may be a long time”, Ms. O’Neill said. “Right now those displaced from homes are kicking the rental markets up as they need to find places to live, too, which is spurring the investors to buy and provide rentals along with their profit. Short sales are promising to get easier as lenders start standardizing their procedures and bringing some semblance of quicker response time to the process. Bottom line – I think it will be at least 2-4 more years”.
Mr. Zegarra offers his thoughts, “The frenzy will be over as soon as we have more inventory in the market. We are currently seeing lots of buyers for very few homes. This upcoming weekend (April 28-29) we have the “Nationwide Open House Weekend” event and buyers will be visiting homes in high numbers”.
We believe that sellers will realize the buyer frenzy could bring a quick sale at a good price. Sellers believing that now is the time to sell will bring more inventory to the market within the next three months, easing the multiple offer situation in the County. Only time will tell. What do you think?
If you are wondering if the time to buy is now, the first thing you should look at is how much you can afford for a mortgage. Please contact us to help you determine your buying power! Contact me directly at Shashank@ArcusLending.com or call (408) 615-0655. Read more about the mortgage market at www.LendingExpertBlog.com
Search Homes for Sale in San Jose, CA at http://www.santaclaracountyrealestate.org/idx/city/san-jose/