Happy New Year, and welcome to your 2011 Real Estate Market Recap.
2011 ended up being a strange year in local real estate, with hot pockets such as Palo Alto enjoying a Seller’s Market and multiple offers being the norm, and areas such as Menlo Park, Mountain View and Los Altos which were Normal or Buyer’s Markets.
In 2011 we saw four major factors driving the local real estate market (in addition to location, location, location and schools). Three look to be sustainable, and one is short-term:
1) Inventory – For all of 2011 the number of homes for sale has been relatively low compared to recent years locally, and very low by national standards. We have been stable at about 40-50%% of the inventory of homes for sale at the same time in 2010 all year, and about a third of that of 2009. At the same time, new buyers have entered the market, especially in Palo Alto, making homes scarce, especially those that are well-priced, well located and in good condition.
2) Interest rates – Rates continue to flirt with record lows, with 30 mortgages around 4%, and shorter term products below 3%. Money to buy homes has never been cheaper. To illustrate, the long-term average for 30 year mortgages is 9%, and the peak
3) Rents – As companies have started hiring again we are seeing a net influx of people into our area.This combined with low vacancy rates has driven an increase in demand for rentals, even as landlords are raising rents by up to 20%. In many cases, it is cheaper to buy a house than rent the equivalent, assuming you have the downpayment.
4) Liquidity Events –This is the non-sustainable driver. LinkedIn was the breakout IPO of 2010, and the pre-IPO employees are able to liquidate their shares this week. I have a couple of LI clients, and it has put a couple of hundred potential buyers into the local market. With the stock runup following the initial offering, and the social media excitement, there are a number of other people who benefitted as well. As I have mentioned before, there has been a lot of Facebook and Zynga shares trading in the secondary markets, and C-level execs at Facebook have been buying higher end homes in Palo Alto (Zuckerberg), Woodside, Atherton and Hillsborough. A number of higher end developers have been buying up property inthese areas to do high-end speculation projects, and I have a list of developers looking for property to buy in these areas.
The good news continues to come in, and our market is back to thriving. All of the communities across the area continue to enjoy active selling markets, with hotspots in Palo Alto, Central Menlo Park, Portola Valley and Woodside.
Last month we were watching two properties in Palo Alto.
169 Tasso in downtown Palo Alto is a turn of the century converted duplex with 3 bedrooms and two baths downstairs and a 1/1 apartment upstairs. This home retains the original architectural details, and has just received fresh paint and some grass outside. Priced at $1,599,000,this home received 5 offers and sold for $1,725,000.
2012 FORECAST, SPECULATION AND PROGNOSTICATION
Over the weekend I read an article about the impending IPO of local super company Facebook. It may actually finally happen this year, and local realtors are abuzz anticipating that newly minted Facebook millionaires will flood the market with cash offers and quick sales. Pardon my cynicism, but if we take out all the early employees and senior level investors who have already liquidated shares and purchased real estate (Zuckerberg and a number of the C-level), and those investors like Yuri Milner who were already wealthy, there aren’t that many people when you compare it to the local housing stock. That means the effect gets diluted quickly. Add in the new campus in Menlo Park and the traffic challenges of getting to and from, and you will likely have a hot spot in Palo Alto (again), maybe Atherton and The Willows neighborhood of Menlo Park. Areas like Los Altos and Los Altos Hills will be largely unaffected.
As a benchmark, Pre-IPO LinkedIn shareholders were able to liquidate their shares in mid-November, resulting in a few cash sales, but that is a few ships as opposed to a rising tide raising all ships.
Expect 2012 to be a repeat of 2011. The Fed and a stagnant national economy are holding a lid on interest rates, and election years are notorious for stagnation. The good news is that our local economy is doing well, and local consumer confidence combined with historically low interest rates should keep the buyer side of the equation fueled.
In 2012 it’s really up to sellers. 2011 was marked by limited inventory across our area, especially in Palo Alto where inventory hovered around 40% of 2010 and less than half of 2009. In the face of solid demand, this created the scarcity of homes that we discussed all year, leading to the frequent competition for homes and multiple offers that we saw across the area during 2011, even during the “slow times” of the year.
As I have said a couple of times this year, if you live in Mountain View, Los Altos, Menlo Park, or especially Palo Alto, and have been considering selling your home, NOW is the best time since 2006 to do so. The combination of interest rates, local economics and market forces has not been in the seller’s favor as much as now in the last 5 years, and it looks like the window may begin closing with interest rates
rising in 2013.
If you would like to learn more about the market for your home, please contact me directly at 650-450-0450 or Chris@VentouxHomes.com