A Pivotal Change in the Real Estate Market...

Our local real estate market is always changing, but some changes are more dynamic than others. We're currently seeing a fairly dramatic shift in our market - we may well look back and consider this to be a pivotal time.

As you know, interest rates were lowered to stimulate the economy, including real estate activity. This strategy has worked very well. Now, interest rates may have bottomed and slowly begun increasing, possibly generating a new cycle.  In recent days, Federal Reserve Chairman Ben Bernanke has clarified the Fed’s outlook for the conclusion of Quantitative Easing (QE), saying he anticipates that the Fed's likely to begin 'tapering' its bond purchases late this year, and end them in 2014 if employment improves as he expects. Will this be the final chapter of QE?  It sure looks possible.

Just the mention of this 'tapering' sent the stock market to its worst two-day decline of the year, and pushed 10-year Treasury yields to their highest level in almost 2 years. Since bottoming out at 1.4% last summer, rates have risen more than 60 percent to 2.4%. Long term bond rates influence mortgage rates, so it's not surprising that mortgage costs have ticked higher in the past month. The average 30-year fixed-rate conforming mortgage has climbed to 4.17%, the 6th straight weekly increase and the highest since March 2012.

What does all this mean for the housing market?

The good news for buyers is that although interest rates have edged a little higher, they're still historically low - at least for now. Those buyers who have been sitting on the sidelines may want to step in, as there is clearly potential for continued rate increases.

In talking with our local office here at Coldwell Banker, it appears that many buyers have gotten that message, and are accelerating their activity.  The challenge is that while inventory is gradually increasing, it continues to lag strong buyer demand. Multiple offers are still the norm. Sellers who are ready to act are able leverage this climate, and in most cases find high demand and aggressive offers for their homes. 

The real question is when this trend will move closer to buyer advantage. For sellers who are waiting for prices to peak, any continued uptrend in interest rates will have a drag effect on buyers in terms of how much they can afford to borrow (and therefore spend). Demand is likely to soften as some buyers decide they need to compromise on home size home, location and condition/amenities. The balance of supply and demand doesn’t have to shift all that much to become a tipping point.

Here are some insights our company President shared from a few of the Coldwell Banker offices in Silicon Valley:

"The Cupertino area is still a great sellers’ market. The number of multiple offers seems to be decreasing, but things are still getting bid way up in the immediate area. Our Los Gatos manager says that renters are continuing to investigate the idea of purchasing rather than renting. The San Jose-Almaden market seems to be slowing in the terms of multiple offers.  One agent recently sold three homes and none were multiple offers.  They weren’t pre-emptive offers either. That assessment is echoed by our San Jose Main office, which suspects the slight cooling in the market is possibly due to the increase in interest rates. Open house activity is still brisk in all price ranges though. Santa Clara County single family and condo inventory is up slightly for the week. Our Willow Glen manager reports that overall market conditions have leveled a bit for buyers there, too. Agents have not seen the frenzy of overbidding and multiple offers on most properties. Some properties had offer dates set and either received only one or two offers at or slightly above asking price and a few didn’t receive any offers. They are seeing the investor buyer go by the wayside. Most buy side purchases that they are seeing are either the move up buyer or the first time home buyer with 20% down payment. Sunnyvale continues to be red hot, our Saratoga manager says.  One home this week went 30% above asking." - Rick Turley   

So, if you or anyone you know are looking at buying or selling in this market—as always, we are at your service to discuss the implications of this shift as it relates to your specific situation. 

Feel free to leave a comment below or contact us at katie.williams@cbnorcal.com or aileen@aileen4homes.com