Buyers: Ready, Set, Go!

Buyers, this is the market that you have been waiting for! Here are four good reasons that you should be actively looking now with the goal of buying a home.

Inventory Is Up

In most of our local communities the real estate market shifted to a sustained sellers’ market in the Spring 2012, i.e. there were more qualified and motivated buyers than homes available. This resulted in most nearly all homes selling in multiple offers with buyers competing by offering generous prices and compelling terms and sellers being able to choose between offers that most often far exceeded their expectations. Over the past several months we have observed higher inventory levels as noted in the chart below.

Number of Homes for Sale:

City	# Homes Available for Sale As of 6/10/2016	Monthly Average # of Homes Sold YTD 2016
Los Altos	36	23
Menlo Park	45	30
Palo Alto	72	36

(Above numbers based on data from MLSListings.com)

Closed Escrows comparing Sale Price to List Price:

The chart below shows the number of homes that closed escrow since May 1, 2016 compared to the list price:

City & Total # of Homes Closed 5/1/16 – 6/10/16	# Homes Sold at List Price	# Homes Sold Over List Price	# Homes Sold Under List Price
Los Altos – 44	7	25	12
Menlo Park – 51	10	35	6
Palo Alto – 73	7	42	24

(Above numbers based on data from MLSListings.com)

Comparing market conditions to the same period (May 1 – June 10) a year ago, it is clear that market conditions are trending toward a more balanced market in these communities.

City	2015 % Closed Sales at List Price or Under	2016 % Closed Sales at List Price or Under
Los Altos	27%	43%
Menlo Park	21%	31%
Palo Alto	21%	42%

(Above numbers based on data from MLSListings.com)

Fewer All Cash Buyers

All-cash buyers often have an advantage in multiple offer situations because they are able to close quickly with fewer potential complications and sometimes with more favorable terms, such as longer seller possession periods. While there are still all cash buyers in the market, there are fewer from overseas when compared to prior years.

Both the National Association of Realtors (NAR) and the Wall Street Journal based on their research have reported on this trend, and anecdotally through our own real estate practice we have observed the lessening participation of overseas buyers in our local real estate market. This represents a golden opportunity for buyers who must rely on institutional financing in order to achieve their dream of home ownership.

Attractive Interest Rates

Interest rates have been low for the past several years and while there have been intermittent threats of rate increases they remain low.  As of June 10, 2016 Wells Fargo, one of the largest home loan providers, was quoting a rate of 3.375% for a non-conforming 30-year fixed rate loan. This would equate to a monthly mortgage payment of $4,420.96 for a $1,000,000 loan, about the cost of renting a 2-bedroom apartment or condo in the area.

The Value of Owning a Home

Owning a home gives you control over your space, even when there are restrictions such as those in a condominium association, and reasonable control over your monthly housing expense, especially if you choose a fixed-rate loan to support your purchase. The largest other component of your monthly housing cost is property taxes and while these may fluctuate they are regulated.

Under current tax law, interest on your loan is tax deductible up to $1,000,000. For details see https://www.irs.gov/pub/irs-pdf/p936.pdf  .

Leverage and appreciation potential are other compelling reasons to purchase a home. Consider the following example for an average price home in Los Altos, rounded to the nearest $100,000.

Purchase price in 2005: $1,500,000
Sale price in 2015: $2,600,000

Assume a down payment of 20% when the home was purchased in 2005 and that the homeowner did not refinance during their ownership:

Purchase price: $1,500,000
Down Payment (20%): $300,000

Over the ten-year ownership period, the home appreciated 73% but the return on the original capital investment is 267%, exclusive of capital gains and principal payments over that period.

Balanced market conditions benefit both sellers and buyers. Sellers can be confident that their homes will sell in a reasonable timeframe when attractively priced and presented. Buyers benefit by having choices and without having to pay a premium and/or assume all the transaction risk by waiving contingencies just to own a home.

Whether you are selling your home or purchasing a home, with years of experience in the mid-Peninsula real estate markets, we are able to provide you with uncompromising service, attention to detail, and perceptive analysis. Contact us to profit from our experience.