As we kick-off a new year, I want to take stock of the trends I’ve seen developing this past year and give you an idea of what to expect in the coming year. Nationally, the residential real estate market has seen rising inventory levels that Realtor.com expects to continue through 2019, as well as interest rate hikes that may affect the affordability of homes into next year.
In Silicon Valley, I expect the market to stabilize in 2019. In 2018, we saw the highest level of inventory our markets have experienced in the last 7 years and I expect that trend to continue into next. I expect increasing inventory levels to affect the number of offers sellers may field in 2019 and this could subsequently slow the rapid growth in prices we’ve seen in recent years. Thus breathing affordability and “new life” into the market.
Regarding rising interest rates, Silicon Valley continues to remain a market with substantial liquidity. So while rising interest rates will affect the affordability of homes for some buyers, I don’t expect them to have a large impact on either price growth or inventory levels. We are also expected to see several large tech firms IPO in 2019, which will bring cash into the marketplace and may increase overall demand.
In the following sections, I’ll break down the individual factors that affect Silicon Valley residential real estate so you know how to prepare for 2019.
2019 Forecast for National Residential Real Estate
Due to multiple rate hikes by the Federal Reserve in 2018, Realtor.com and other industry groups have forecasted that national home mortgage interest rates are likely to rise to 5.5% by the end of next year. Increases in interest rates typically make buying a home more costly and could slow nationwide housing price growth to 2.2% over the coming year as well. Realtor.com also predicts that inventory will increase across the nation, especially in high-end markets.
What does that mean for us? Well, let’s take a look at each of these predictions.
Rising Interest Rates
Rising interest rates can mean higher monthly mortgage payments and more interest paid in general on your mortgage, and can, therefore, make homes more expensive to purchase. But the cost of a higher interest rate can be mitigated by placing a larger down payment on your home, thereby requiring a lower loan amount. For buyers who have the of liquidity available to increase their down payments accordingly, I don’t expect higher interest rates to affect their ability to buy a home.
Another thing to keep in mind is that interest rates are still near record lows. In fact, as recently as the 1990s, interest rates were double what they are now. So while 5.5% might seem steep, you can still buy a home if you’re strategic about the homes you target, obtain a full pre-approval by a mortgage lender, and develop a game plan that gets you into a home within your desired time period.
Price Growth
If we look at the first 11 months of 2018, we see that median home prices in Silicon Valley increased from 2017 numbers by at least 10% in every market. One standout market was Woodside, which had a 2018 median sale price of $3.4 million, up 45% year-over-year from $2.35 million in 2017. With a median sale price of $6.625 million, Atherton also experienced a major (39%) year-over-year jump from 2017 prices.
Every Silicon Valley market saw an increase in average sale price per square foot in 2018 in except Los Altos Hills, where it dropped by just 2%. But the difference in price per square foot in Los Altos Hills was only $25 ($1,262 vs. $1,237), which is a relatively small drop and could reflect one large property that’s skewing the numbers.
Increasing Inventory
Like the rest of the country, San Mateo and Santa Clara counties saw an increase in inventory in 2018. When we started the year, inventory levels were hovering around one month’s supply, meaning it would take 30 days to sell all of the homes on the market, and this continued through June. But starting in July, we started to see more homes for sale and inventory levels rise to 1.5 months’ supply or 45 days, for the first time since February 2017 when we had 1.8 months or 54 days of inventory on the market. In October and November of this year, San Mateo and Santa Clara counties had 1.7 months or 51 days of supply.
What’s unlike the rest of the country, is that increase in inventory has occurred across all price points except for the high-end markets with median home prices above $3.3 million. In fact, Atherton, Los Altos Hills, Los Altos, Portola Valley and Woodside saw a year-over-year drop in inventory in 2018.
It’s too early to tell if these trends will continue for 2019, but what I can tell you is our market continues to be driven by supply and demand. And although I foresee a continuing increase in inventory in 2019, I also foresee demand to continue to outpace supply. That means our seller's market should continue and although most sellers may not receive 15 offers for their homes like we’ve seen in years past, they may still receive 1-3 offers on average and that’s likely to continue through next year.
Buyers and Sellers in 2019
For sellers, the presentation of their property and pricing strategy will become more and more critical with increased inventory and competition. They’ll need a realtor who understands their market’s dynamics and can position them to be successful right out the gate.
Whether you’re a buyer or seller, the moral of the story for 2019, is that while it’s good to keep tabs on the national real estate market, it’s important to remember that the Silicon Valley markets behave according to their own rules. That is why you need a realtor who is in the market every day negotiating for their clients as they will be the first to know when things begin to change and they can help you make the right adjustments.
