Real Estate

2016 had four-year peak for median sales price

2017 bodes well for home ownership as economy may put dollars into first-time home-buyers' hands

The 2016 Santa Clara County housing market continued to build off of the momentum of the last three years. New price thresholds were set in all tiers of the market, interest rates remained low, and springtime (March through June) continued its four-year streak as the market peak for sales.

As of November 2016, the median sale price of all 9,563 single family homes sold in Santa Clara County was $1.25 million. This compares to the median sale price of $955,000 of 9,979 homes sold in Santa Clara County as of November 2015. These prices represent a 30.9 percent increase in 2016. In 2015, the increase was 11.7 percent over the same figures measured in 2014. Compound these combined increases and the market results are noteworthy, particularly when you factor in the uncertainty in all markets caused by this year's Brexit vote in England and the presidential election in the United States. One might have expected a gradual decrease during these months of uncertainty reinforced by the media proclaiming a slowing market; instead the median sale prices increased in Silicon Valley.

Uncertainty revealed itself not in the median sale price but rather in the total number of sales. The number of homes sold as of November was down 4.3 percent in 2016 from 2015, and were 0.5 percent lower than total sales in 2014.

It's definitely worth taking a look at each tier of single-family homes in the market separately. The top tier, the luxury tier, reported a median sales price of $2,095,000; this is a 7.3 percent increase from 2015. The second tier of the market reported a median sales price of $1,225,500. The third tier a median sales price of $898,444. The average days on the market (DOM) was 25.

Quality homes in the mid- to lower tiers of the market ($800,000 to $1,200,000) continue to see multiple offers. Low interest rates also continue to play a big role here, as does easier access to financing when compared to 2015.

The top tier of the housing market continues to sell strongly when properly priced, and when considered both desirable and functional by potential buyers according to their needs and tastes. We have seen that contemporary and ultra, but not too modern, homes are preferred to Tuscan or Mediterranean motifs. Physical obstacles such as difficult property access or hillsides often turn potential buyers away.

The major constraint in this luxury market segment is low inventory. There is not a wide selection of homes from which to choose within this price range. Additionally, buyers want what they want and do not want to "settle" for less. Similarly, on the seller's side, low inventories of homes for sale lead more potential sellers to decide to hold off on listing their property, as there is not enough desirable options to push them to sell.

Santa Clara County's 2016 housing market has been constrained by low, and by some measures historically low, inventory levels (sales inventory for single-family homes is down 17 percent). On the other hand, low inventory may bode well for price appreciation in 2017. Estimating what appreciation rates may be is always difficult, but given the positive wage growth trajectory in Silicon Valley, and possible increased borrowing power, more buyers may be in a position to afford larger, more expensive homes in the near future therefore increasing appreciation rates for existing, limited inventories that may go on the market.

The Santa Clara County housing market continues its fourth consecutive year of upward trajectory. A more gradual upward trajectory in 2016 than 2015, but still upward, despite the media predicting a slowdown. Perhaps, now that Donald Trump is the President-elect, uncertainty is being replaced with the word conjecture as Mr. Trump has yet to discuss his specific plans concerning the real estate market in either his campaign or his post-election statements.

Turning to policy issues, deregulation has been a centerpiece of Trump's campaign rhetoric from the beginning. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 will likely be lifted or loosened. Lifting/loosening these policies could be a boost for home ownership as well as the new construction market in Santa Clara County. On the other hand, it's not just tax reform, deregulation, interest rates, greater access to bank loans, affordability, and a seemingly pro-growth Trump administration. Additional factors, some known, some unknown, some national, some international, may impact continued uncertainty and volatility in the housing market specifically, as well as the overall economy in general.

To sum up these conjectures about possible effects of Trumponomics on the 2017 Santa Clara County housing market, consider Trump's consistent statements throughout his campaign of lowering taxes and simplifying (and/or lifting) regulatory policies, though not yet specific to the housing market. The implications of having more after-tax income and lower operating costs of doing business? More money to invest in home ownership.

Add other possible elements to this mix for 2017: a likely gradual rate increase by the Federal Reserve (a most impactful element), a continually growing local job market, and a local upward wage growth index along with a historically low housing inventory. The result? A guardedly optimistic and increasingly steep, highly competitive housing market in need of new inventory to enable first time buyers to access home ownership in the Santa Clara County.

Note: All data referenced above was provided by MLS Listings. This information is deemed reliable but not guaranteed. The information presented above are the thoughts and views of Hadar Guibara from Sereno Group. It is not intended to be used as investment advice.

Hadar Guibara is a Realtor with Sereno Group in Palo Alto. She can be reached at hadar@serenogroup.com.

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