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Photograph by Paul Myers
Kim Richman of Coldwell Banker in Los Gatos outside a house on La Rinconada that sold over the asking price.
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Real estate market is heating up once again
By Jean Newton
Multiple offers are back and the talk in the real estate industry is that the market is hot again. After a year filled with uncertainty, what's behind this recent trend? The National Association of Realtors projects home sales in 2002 to keep pace with historic highs and local Realtors are seeing a surge of interest that validates the optimistic forecast.
David Lereah, the association's chief economist, said the strength of the housing market--which surprised many analysts last year--is not about to lose momentum. "All of the positive factors that contributed to record home sales in 2000 will be at play again this year--the fundamentals of the market will not change soon," he said. "Mortgage interest rates will remain historically low; most people will continue to have good jobs and new households are still being created with our growing population--these are families that have a high desire for the American dream of home ownership."
According to Lereah, existing-home sales are expected to be the second highest on record, slipping 1.1 percent this year to a total of 5.20 million units. New-home sales, which also set a record last year, will decline 3.0 percent in 2002 to a total of 874,000 units. He forecasts housing starts to drop 3.7 percent to a total of 1.54 million units this year.
Home sales performance should vary during the year. "Weaker labor market conditions will have a mild dampening effect on home sales in the first half of the year, but as job creation accelerates in the second half of the year and consumer confidence strengthens, we'll see somewhat stronger levels of home sales," Lereah explained. "The 30-year fixed-mortgage interest rate will increase gradually as the economy improves, reaching 7.3 percent by third quarter, but not enough to create any significant affordability problems, given the fact that interest rates are still so low in historical terms."
With relatively low housing inventory conditions prevailing in many areas this year, the association forecasts the national median existing-home price will rise.
Lereah forecasts U.S. economic growth, as measured by the gross domestic product (GDP), to rise at a healthy rate in the spring and reach a 3.5 percent annual growth rate in the third quarter. Consumer price inflation for this year will be only 1.7 percent. The association expects the unemployment rate to peak at 6.1 percent in the second quarter before easing in the second half of the year, while inflation-adjusted disposable personal income should grow 2.3 percent in 2002.
While the national forecast looks promising, local Realtors are seeing an unanticipated rush of activity in Silicon Valley that translates into a market filled with multiple offers in contrast to the slower pace of the past year. Since December, Realtor Kim Richman of Coldwell Banker in Los Gatos has sold three homes, all with multiple offers in the $600,000 to $1,900,000 range. One of her recent clients sold their home in Willow Glen with multiple offers, then turned around and bought a house in Los Gatos, also with multiple offers.
"Along with the positive consumer confidence reports, the buyers are hearing all the reports that we are coming out of the recession and that has had them come out in force after the first of the year. They feel that the prices could go up and are trying to take advantage of the lower housing prices that have been established over the last year," Richman said.
As far as sellers go, Richman thinks most are waiting for the spring market from April to June to put their homes on the market, therefore creating a housing shortage for the eager buyers. Multiple offers are the result. "What the sellers don't know is that there is more competition during the spring market which will then level out the supply vs. demand equation, and our real estate market will stabilize. This will not be anything close to a 2000, but it's not going to be as bad as 2001 either," Richman said.
Realtor Anthony McGee of Village Square Realty in Los Gatos also has seen multiple offers of at least three to seven ever since the end of November.
"Buyers who were sitting on the fence seemed to jump off at the same time. I don't really think there is that much more of a demand it's just that the inventory is shrinking. The buyers still think they have the upper hand, though, and are coming in lower than asking. If the inventory keeps on shrinking, we might even see the prices start to climb again," McGee said.
John Lazar, a Realtor with Coldwell Banker in Los Altos, said many buyers who sat on the sidelines last year because of the economy, Sept. 11, and the frustration of being beat out by other buyers during 2000, are deciding that the time is right to come back into the marketplace. "There seems to be a stabilizing force in the economy. Interest rates are at low levels. The job market problems seem to have slowed. All these factors, combined with a low level of inventory, have contributed to more than one buyer deciding to buy a particular property at the same time," he said.
Lazar is advising sellers who took their homes off the market or rented them because they did not sell last fall and winter to now consider re-listing because of current market conditions.
Since many of the economists are predicting that the economy will strengthen as the year progresses, many buyers may be thinking that the market has reached the bottom. But Dante Drummond of Coldwell Banker in Palo Alto said that prices do tend to go up during February and March until more inventory comes on the market to slow it down in April.
"There is a pent-up demand for housing. Many people who really wanted to buy last year did not because the marketplace was adjusting, and they were uncertain as to what to do. We are having over a hundred people a day come into our weekend open houses. Disclosure packets are being given out in high numbers (as many as 50 in some cases). Of those 50 we may only receive five to 10 offers; the others choose not to compete in the fray."
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Los Gatos, California Since 1881
