The Real Deal
Stock market money may be inflating home values
How much would you be willing to pay for a home? One million? Two million? Over the asking price? The buying frenzy that has been reported for the last year rivals all the previous leaps in housing prices. Although the pace has slowed somewhat since the craziness of early spring, potential homebuyers are still "bidding up" homes in the Los Gatos and Saratoga areas at an alarming rate.
Homes in this area of Northern California have historically been more expensive than other areas of the state, but the recent trend of offering more than the asking price has moved the average price of a home higher than in Beverly Hills. One of the key factors in this buying craze is the booming high-tech market.
Seventeen percent of people who bought homes in the Bay Area in the first quarter of this year used stock market proceeds for down payments. Many housing experts feel that this "stock market money" is contributing to competition among homebuyers and could be artificially inflating home values.
One of a Realtor's jobs is to inform clients of the risks of buying a home that may be overvalued and therefore, will come down in price as the market levels off. Unfortunately, clients who are purchasing during such heady and emotional times don't always listen. One recent client who was willing to pay $1 million over the asking price told his Realtor, "What is $1 million more or less when you have $100 million in the bank."
How do you argue with that kind of statement? Sometimes you can't, but most homebuyers are not necessarily in that client's tax bracket. The majority of first-time buyers who offer to pay 20 percent to 45 percent above the asking price are leveraging a very large part, if not all, of their newly created windfall.
It is a Realtor's legal and moral responsibility to advise his or her clients of the potential drawbacks of buying a home under those circumstances. Most qualified Realtors understand this role and take it very seriously.
In an area such as the Silicon Valley where land is at a premium, employment is booming and bank accounts are bursting at the seams, it is easy to believe that real estate will continue to go up in value. The mantra of Realtors everywhere--location, location, location--definitely fits this market.
As with other economic rises and falls, though, the market will find a saturation point and level off, or possibly decline. Your role as an informed buyer and the role of your Realtor is to make sure that the economic value placed on a piece of property will hold its own over the long run.
If you are currently considering purchasing a home in an area that is experiencing bidding wars and multiple-offer situations, talk to your Realtor, so you can make an informed choice for one of the biggest investments you will ever make in your life.
Information provided in this column is presented by the Realtor members of the Silicon Valley Association of Realtors. Send questions regarding any topic that you would like to see discussed in this column to: Your Realtor Resource, c/o SILVAR, 345 San Antonio Road, Los Altos, CA, 94022; call (650) 949-9115; or send email to: ppompei@siliconvalleyrealtors.org.
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Los Gatos, California Since 1881
