Is It A Good Time To Purchase Investment Property in Silicon Valley?

Is This Is A Good Time To Purchase Investment Real Estate in The Silicon Valley?

YES!!!!!!

Next question? But seriously.

I previously talked about the effect of increased interest rates on Silicon Valley Real Estate.  For my analysis of that situation please click here.

The upshot is that higher the interest rates will decrease prices, but maybe not in proportion to the cost of ownership, especially in higher priced/more popular areas of Silicon Valley.

This will keep the affordability of home ownership out of reach of many Silicon Valley residents. That means there will be a greater number of potential renters in the area which is good news for real estate investors.

Currently, the CAP rate on rental real estate has not been great, especially in high end properties. It is not uncommon to see 2% cap rates in multi- family homes in Palo Alto or Mountain View. The value was in appreciation.

No one is predicting much appreciation in this market in the next year or two, and rents are already ridiculously high. I am not convinced they are going to increase much in the next 2 years either.

Where I see opportunity in the Silicon Valley real estate investment market is in areas near the tech expansion in San Jose, or in those easy commuting distance but still affordable like Newark and Union City.

I believe that investing in rental property in these areas of the Silicon Valley have the potential for increased rental values as well as appreciation. They are more affordable than buying in higher priced cities like Mountain View, Palo Alto, Menlo Park, Saratoga, or Los Gatos, and they offer relatively easy commutes to the major employers, so they are good for attracting the demographics most likely to rent.

Of course you need to keep in mind rent restrictions in San Jose, so multi -family homes may not be your best option.  Additionally the multifamilyhomes in San Jose tend to be extremely old and need a lot of repairs and upkeep.

I like the newer buildings in downtown San Jose as rental units. They are relatively affordable, don’t need a lot of upkeep, popular with the tech force so easy to rent out, and can give a pretty good return.

There are also many condos/townhomes in Newark and Union City as well as a lot of new construction there that is in the works. If the interest rates get too high and the newer construction becomes more difficult to sell, the builders MAY ease up on the rental restrictions and that would be a good opportunity.

If you are going to purchase a Silicon Valley investment property with a loan, then it is best to do so as soon as possible, because the increasing rates will not be working in your favor.

If you are purchasing a Silicon Valley investment property with cash then I think the first half of 2017 will be a great time to do that, as the pool of renters increases and the pool of buyers decrease.

If you have any questions about buying or selling investment property in Silicon Valley please feel free to contact me.

Marcy Moyer

Keller Williams Realty

Specializing in Probate and Trust Sales

650-619-9285

marcy@marcymoyer.com

www.marcymoyer.com

https://www.facebook.com/marcy.r.moyer

@marcyagent 

What Do Higher Interest Rates Mean For Silicon Valley Real Estate

 

After the election I started watching Bloomberg TV instead of the news/opinion channels I had been watching.  I guess I just got tired of all the yelling, in addition to the fact that I felt the need to try and get some clarity on what might happen to the economy, and more specifically the Silicon Valley housing market.

Besides the much needed civility I found on Bloomberg, I quickly came away with the understanding that no matter who the different reporters and commentators said they thought would be winners and losers in a new political environment, there was one thing everyone agreed on. Interest rates are going up. PERIOD, end of story. Janet Yellen was going to raise interest rates anyway, due to the favorable economic environment. But added to what would have happened, regardless of the election outcome, everyone agrees that we appear to be headed for an inflationary period.

I am old enough to have purchased my first home when interest rates were 19% and the most valuable homes were those that had assumable mortgages as 13% or less. Hopefully we are not going back to those days.

But we are going from interest rates in low 3% to now over 4% and presumably still rising. So what does this mean to the Silicon Valley housing market?

Common wisdom is that as interest rates go up housing prices go down since the ability for a borrower to pay also goes down. We have seen this in the past, but the decrease in price is not always proportional to the increase in rate.

Take this example.

A Million dollar loan: 30 year fixed

At 4.150%:  $4861 a month

At 5%:  $5368

At 6%:  $5996

At 7%:  $6653

The difference for each jump of 1% in interest translates into about a 10% increase in monthly payment.

For a conforming loan of $400,000 30 year fixed

At 4%:  1910

At 5%:  2147

At 6%:  2398

At 7%:  2661

Again, the difference for each 1% in increased interest rates equates to about a 10% increase in monthly payment.

So, in order to make waiting a money saver, If interest rates go up 1% pt. housing prices must go down over 10%. At a 2% pt hike housing prices must go down over 20%, and at a 3 pt climb they must go down over 30%.

Do we expect this to happen in the Silicon Valley housing market in the near future?

No one can say for sure, but let’s look back at housing rate drops during the big crash of 2008-2010/2011 in some different neighborhoods.

These are average prices for all residential real estate. Some segments fell more than others, but on average I looked at what the mean sale was for single family homes, town homes and condos in four locations: Palo Alto, East Palo Alto, 94087 (Sunnyvale west of El Camino), and Willow Glen.

Palo Alto: 

High before crash:  $1.3 million

Low after crash       $1.2 million

East Palo Alto

High before crash:   $628,000

Low after crash:       $295,000

94087

High before crash:    $779,000

Low after crash:        $717,000

Willow Glen: 

High Before crash:     $793,000

Low after crash:         $637,000

What so these numbers tell me about the Silicon Valley housing market, and by extension you?

If you are planning on buying in one of the areas where prices held up fairly well during the crash, then waiting for prices to drop as interest rates rise may not be to your advantage.

If you are planning on buying in a location that did not hold up well during the crash then an increase in interest rates may get you some savings in the long run or maybe bigger, better property.

My only concern would be that places like East Palo Alto that suffered so badly during the crash may not drop as much with higher interest rates since the location is so convenient to Facebook and Google. That may put enough pressure on these east of 101 neighborhoods to keep the prices supported more than they were in the crash.

I believe the same may be true in San Jose as companies like Google and Apple move south where there is more available space. In neighborhoods like Alum Rock or South San Jose where there is a lot of investor activity it may be better to wait until prices fall.

If you have any questions about buying or selling a home in the Silicon Valley please feel free to contact me.

Marcy Moyer

Keller Williams Realty

Specializing in Probate and Trust Sales

650-619-9285

marcy@marcymoyer.com

www.marcymoyer.com

Silicon Valley Housing Inventory Snap Shot June 2015

I hope you will find the following snapshot of local Real Estate inventory interesting. The table represents aggregated values based on MLS data for the specified date. Housing Inventory Snapshot May 28, 2015   Average List Price 30 Days Trend Median List Price 30 Days Trend Average DOM: active/sold 30 Days Trend Number of Listings Alameda County, CA Single Family under $1M $626,220 0.80% $649,000 3.02% 32 0 687 Single Family over $1M $1,842,079 1.42% $1,500,000 0.01% 61 0 270 Condo/Townhome under $600K $407,617 -2.42% $399,900 -4.33% 27 -1 189 Condo/Townhome over $600K $755,051 1.88% $698,880 -3.85% 17 -1 58 Contra Costa County, CA Single Family under $1M $532,167 1.05% $498,000 2.05% 42 -3 975 Single Family over $1M $2,086,584 5.24% $1,699,000 2.67% 68 2 454 Condo/Townhome under $600K $355,286 2.36% $349,500 5.94% 30 -2 182 Condo/Townhome over $600K $734,172 1.31% $724,999 0.83% 20 5 56 Monterey County, CA Single Family under $1M $568,607 -2.28% $519,450 -7.08% 71 / 16 -3 / -78 309 Single Family over $1M $3,662,292 0.40% $2,095,000 -0.24% 161 / 10 -5 / -134 298 Condo/Townhome under $600K $322,434 3.83% $305,000 -6.30% 72 / 45 -3 / 45 35 Condo/Townhome over $600K $929,938 13.87% $839,000 8.96% 131 / 38 43 / 38 24 San Benito County, CA Single Family under $1M $580,165 -1.87% $529,000 -2.94% 104 / 10 -12 / -22 64 San Mateo County, CA Single Family under $1M $780,580 3.76% $794,888 4.59% 27 / 9 -2 / -11 80 Single Family over $1M $4,390,247 8.99% $2,288,800 14.50% 72 / 9 4 / -12 234 Condo/Townhome under $600K $463,969 2.96% $468,000 -0.21% 14 / 15 -4 / -1 25 Condo/Townhome over $600K $1,002,913 1.86% $868,000 5.21% 36 / 14 -5 / 4 42 Santa Clara County, CA Single Family under $1M $754,971 3.98% $765,000 3.52% 33 / 23 0 / 11 516 Single Family over $1M $2,555,419 -3.66% $1,850,000 -5.52% 53 / 13 5 / 0 593 Condo/Townhome under $600K $449,515 3.44% $450,000 2.74% 23 / 19 4 / -3 131 Condo/Townhome over $600K $905,763 0.86% $848,000 0.00% 18 / 14 0 / 6 117 Santa Cruz County, CA Single Family under $1M $694,762 3.17% $709,900 4.47% 55 / 55 2 / 40 222 Single Family over $1M $1,904,654 -3.45% $1,560,000 4.00% 81 / 11 -17 / -15 138 Condo/Townhome under $600K $412,789 3.00% $435,000 9.02% 72 / 3 5 / -8 57 Condo/Townhome over $600K $813,265 -2.00% $725,000 0.00% 104 / 18 0 / 0 30

If you know someone who is considering buying or selling a home, please give me a call. I will provide professional & courteous service along with knowledgeable guidance through the process.

Sincerely,     Marcy Moyer Realtor® Direct (650) 619-9285 Cell Phone (650) 619-9285 Fax (650) 560-6290 CalBRE License Number: 01191194 marcy@marcymoyer.com www.marcymoyer.com Keller Williams

San Francisco Bay Area Housing Snapshot

Housing Inventory Snapshot January 31, 2014   Average List Price for active listings Median List Price for active listings Average DOM: for active listings/ for sold listings Santa Clara County, CA Single Family under $1M $690,675 $698,000 41  / 34 Single Family over $1M $2,879,982 $1,899,000 66  / 23 Condo/Townhome under $600K $413,425 $409,500 39  / 34 Condo/Townhome over $600K $855,255 $784,000 26  / 23 San Mateo County, CA Single Family under $1M $690,456 $679,000 41  / 31 Single Family over $1M $4,499,167 $2,100,000 76  / 22 Condo/Townhome under $600K $402,740 $425,000 36  / 35 Condo/Townhome over $600K $932,942 $846,275 36  / 6 Santa Cruz County, CA Single Family under $1M $637,981 $649,000 69  / 35 Single Family over $1M $2,117,319 $1,750,000 111  / 138 Condo/Townhome under $600K $393,327 $359,000 85  / 51 Condo/Townhome over $600K $849,182 $739,000 152  / 87 Monterey County, CA Single Family under $1M $564,867 $499,000 71  / 54 Single Family over $1M $3,531,699 $2,295,000 116  / 145 Condo/Townhome under $600K $303,856 $249,000 80  / 66 Condo/Townhome over $600K $933,776 $725,000 83  / N/A** San Benito County, CA Single Family under $1M $533,637 $488,800 61  / 81 Alameda County, CA Single Family under $1M $513,633 $498,000 44  / 83 Single Family over $1M $2,061,946 $1,478,888 84  / 84 Condo/Townhome under $600K $374,727 $365,000 48  / 75 Condo/Townhome over $600K $768,324 $697,280 39  / 69 Contra Costa County, CA Single Family under $1M $484,078 $425,000 49  / 89 Single Family over $1M $2,484,534 $1,599,000 91  / 100 Condo/Townhome under $600K $311,574 $295,000 37  / 73 Condo/Townhome over $600K $707,300 $695,000 17  / 68

What I find most interesting about these stats is that in Alameda, San Mateo and Santa Clara Counties, the more expensive homes and condos sold have a shorter days on market than the less expensive Silicon Valley homes sold.

This shows that the good economy, low unemployment rate, high stock market values, as well as foreign money are all contributing to a booming market in Silicon Valley luxury real estate sales. It is also an indication that we saw high levels of appreciation in 2013 in Silicon Valley home sales (20-40% in many areas) so it is harder to find single family homes under a million dollars or condos under six hundred thousand dollars in the more popular neighborhoods.

So what does this mean for buyers in 2014? Homes are more expensive and sell quickly. You should study the market seriously for a while before jumping in so you know what values are and where they are going. Make intelligent offers that will most likely need to be very aggressive to win in a multiple offer situations.

For sellers, hire a great agent who can help you price your home to get the best terms for your yourself, and exposure that emphasizes the Silicon Valley home you are selling, not the agent who is selling it.

If you have any questions about buying or selling a home in the Silicon Valley please feel free to contact me.

If you would like a real time search of homes sale in the Silicon Valley click here.

Marcy Moyer

Keller Williams Realty

www.marcymoyer.com

marcy@marcymoyer.com

Ca BRE 01191194

650-619-9285