The 2018 Real Estate Market in Review
Where is the Silicon Valley Real Estate
Market Headed in 2019?
2018 started strong for home sellers as the trend in price appreciation carried over from 2017. By the start of Spring, the market was in full swing with prices averaging 25% above 2017 prices at the same time and many multiple bids situations. The short supply and heavy demand pushed the average sale price in Santa Clara County above $1.7M.
Towards the end of May though, buyers became more hesitant to engage in bidding wars. The price-to-list ratio steadily declined from 12% to ultimately land at 5%. In September, the average sales price fell below $1.5M, homes took longer to sell and the final sale price matched more closely the original asking price.
There are multiple opinions about what caused the shift: Some said that it was a natural correction given the dramatic run up in home values, others pointed out to the fact that rising interest rates led to a softening in demand.
History has shown us though that on three occasions in the past 30 years interest rates increased by about two percentage points but home sales either stayed flat or went up with the exception of 2008. As a result, as long as the economy stays strong, home sales may not necessarily slow down in 2019 even as rates continue to rise.
What to Expect in 2019
End of the year data suggest that the market might be reaching a “balance point”: Sales prices are almost aligned with list prices, average sales prices are holding steady and inventory is close to historical averages but twice as much as a year ago.
Buyers who are able to stay in the market might find less competition. Those who are priced out may feel an increased sense of urgency to close before it gets even more expensive, which might reignite competition.
Sellers will need to be mindful of increasing competition and shouldn't necessarily expect to name their price and get it in full. With a lower demand, there should be fewer bidding wars. However, with inventory expected to remain limited in certain markets, sellers who price competitively should still be able to walk away with a handsome profit but not as high as the one observed in previous years.
To conclude, the two key lessons from the 2018 shift in the Real estate Market in Silicon Valley are as follows: Markets change quickly and both buyers and sellers should closely monitor market trends before they jump. Based on the fact that Silicon Valley economic indicators are still above the national average, it is expected that demand will remain strong which may fuel another increase in home prices but within reason if interest rates keep rising in 2019.