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Photograph by Kathy De La Torre
The stock market played an important role in the local real estate market. The tech-rich NASDAQ took big dips in March and October/November, and caused havoc for some local home sales.
Real estate market was one wild ride in 2000
By Sue DeRosier
2000 was not only the end of one millennium and the beginning of another, it was also a year of profound adjustments, shakeouts, roller-coaster rides and for some in the dot-com sector, the fastest rise and fall anyone had probably experienced recently. For the local real estate market, the effect of all the changes were dramatic and never-ending.
As a wrap-up to the year, several brokers and general managers of local real estate companies shared their perspective on this year's wild ride in real estate.
Nasdaq and the Internet
The fluctuations in the high technology stock market had probably the single, most visible impact to the buying and selling of homes in Silicon Valley during 2000, according to the real estate managers.
"During March and September/October when the Nasdaq took big dips, we saw deals fall through because the value of the buyer's stock that was going to be the down payment for a home dropped considerably," said John Carman, manager of Coldwell Banker in Los Gatos.
Carman and Kim Richman, manager of Century 21 Seville-Contempo, said contracts included legal statements referring to the value of a person's stock at a particular time as being the date an offer would be available to close. The contingency was so new to the real estate industry that legal counsel became routine during contract negotiations in 2000.
"When the stock market was riding high early in the year, it was as if money was no object but, this market mirrors the Nasdaq probably more than any other market in the world so as the stock market went so did the bigger deals in real estate," said Carman.
Jeff Barnett, vice president and manager of Alain Pinel Realtors in Los Gatos, experienced the Nasdaq effect in full force recently when a multimillion dollar offer fell through because the buyer's stock options became almost worthless overnight.
"Although the stock market has had a definite effect on home sales, from our experience, the effects have been felt at only two points during the year ... March and October/November," added Barnett.
The price of a technology stock was not the only way high tech impacted the real estate market during 2000. With the advent of the Internet, real estate took a "virtual" turn and, according to this group of managers, the turn wasn't as hairpin as originally feared.
"Eighty-five percent of our clients use the Internet to conduct initial home searches before contacting a Coldwell-Banker office. However, we have found that instead of the Internet usurping the power and influence of a Realtor it actually has reaffirmed the value of what we do as qualified, knowledgeable professionals," said Carman. "Many times, clients come in looking for someone to explain all the information they have seen on the web which for a strong, up-to-date Realtor is no problem at all. The one thing the Internet is doing is weeding out Realtors from agents who are less equipped to handle the changing times."
Dave Walsh, vice president and branch manager of Fred Sands Landmark Properties, concurred with Carman that serious buyers still use traditional methods for conducting a home search. "People still need to walk a home, feel a home's atmosphere before making an offer, and today, there is only one way to do that--hire a Realtor you can trust and send them into the market with your requirements."
In addition to buyers and prospects using the Internet to search for a home or shop for a mortgage, some clients opted to use Internet-based real estate companies, such as eHome.com, to handle the whole transaction. The demise of the dot-com business model hit eHome recently and, according to market information, they have decided to change their strategy and set up shop similar to a traditional brokerage.
Multiple Offer Madness
The seller's market was fueled by the lowest available supply-to-demand ratio seen in the market for decades. For every home listed, there were dozens of potential buyers. This market environment created a fear-based buying frenzy that lasted far longer than anyone thought possible. Although the number of offers on homes has decreased in some areas, according to Walsh, homes in the $600,000-800,000 range in desirable districts such as Los Gatos, Cupertino and the Rose Garden are still receiving five to 10 offers on each listing.
"Most of us in this market thought that multiple offers would trail off at the end of spring, but we have seen it continue all year and quite frankly, I don't see it going away," said Walsh.
Kim Richman adds that in the Saratoga market where the average price is above $1 million, multiple offers are dwindling, but in the more moderate priced areas the shortage of inventory is still driving a multiple-offer listing. According to Richman, one of the reasons the inventory is so low is that homeowners are electing to keep the properties as rentals rather than selling them outright.
Changing Face of Buyers
Real estate companies were faced with many challenges during 2000, and one of them was the need to understand a diverse group of cultures that entered Silicon Valley for the first time. As the technology sector expanded its search for qualified applicants to countries such as India, Korea, China, Russia, Australia, and Japan, Realtors had to become more knowledgeable about the various cultural needs of their clients.
"For the first time, we have hired a Realtor from India as so many of our clients are from that country and we want to be able to truly understand their cultural needs and requirements in a home setting," said Richman.
Ending and Beginning Again
With home values at an all-time high, many homeowners are cashing out and buying retirement homes or vacation properties in Monterey, Maui and the Sierras. This infusion of people and money into outlying markets has changed the landscape in those areas. Prices are higher. New home construction and remodeling projects are mirroring the Bay Area's "monster home" phenomenon.
"The primary buyers in Pebble Beach and Hawaii are from Silicon Valley," said Carman. "Our thriving market has fueled tremendous growth spurts in many other areas of the country."
In addition to vacation and retirement areas benefiting from the Bay Area market, according to Carman, less trendy areas, such as Phoenix, Las Vegas and the Sacramento Valley, are also seeing an influx of Silicon Valley transplants. Sellers wishing to use their equity here to purchase bigger, newer homes in less populated areas are making the decision to pick up and move, once and for all.
"The Central Valley--Modesto, Tracy, Stockton and Sacramento--are building new home communities as fast as they can to accommodate all of the people who want more home for their money and a slightly, slower pace of life," added Carman.
Looking to the Future
So what does the coming year hold for Silicon Valley real estate? Each of the managers was asked to look down the road and provide thoughts for 2001.
The California Association of Realtors predicts that 2001 will be one of the top five best years for real estate. Their economists forecast a slight drop of 3 to 6 percent in the number of sales, but it is believed that prices will continue to rise as the supply-and-demand ratio favors the seller.
"Unlike this year, I don't see the Nasdaq being a negative player in 2001," said Barnett. "The only effect I do see from the stock market is a positive one as people are realizing that real estate is one of the best investments you can make, especially when stocks are in a downturn."
Opportunity Knocks
Walsh echoes Barnett's prediction as he sees an opportunity for Realtors to market the investment aspect of owning property during a volatile stock market.
All of the managers feel that multiple offers and rising prices will be the order of the day during the hot real estate season of spring and early summer. However, they did feel that 2001 will be more "balanced" and "healthier."
"We are already seeing some sanity coming back into the market where buyers are simply picking their opportunities more carefully, offering what they emotionally can afford and walking away from completely unreasonable situations," said Richman.
Buyers have been through the mill. They are picking their battles and they don't have a desire to counter offers in a bidding war or put themselves in a financial situation they just can't afford to sustain said Walsh.
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Saratoga, California Since 1955
