Luxury homes stay longer on the market than less pricey homes. Surprised?… Anyone? Of course not, it takes money to buy real estate and a heck of a lot of it to buy million dollar properties. More than half of the buyers can afford an average priced home most anywhere in the US, but way less than 10% can buy their million dollar dream home.
The problem is not just the price, as it can usually be justified based on comparable sales or active listings. The problem, as we noted a few blogs back, is that qualified buyers are not legion at the top end of the market. Today, in some of the most exclusive zip codes from one coast to the next, you may have 10,000 homes for sale over $3M with “only” 8,000 possible buyers looking in that price range. Over $10M, you may have 1,000 properties fighting over 600 buyers.
With the prospect of better tomorrows, million dollar homes have been mushrooming all over the land a lot faster than the number of millionaires. At that price level, the demand can only buy a fraction of the supply. Lowering the price is not necessarily the recipe to capture a buyer since, as stated earlier, the price, most of the time, is right on target. We are in a catch 22 dilemma. Only time and a stronger economy can help.
According to a recent study from the California Association of Realtors (CAR), by chief economist Leslie Appleton Young, it took 6.4 months, on average, to sell homes listed in excess of $1M last August, while it took roughly half the time (3.5 months) to sell homes priced between $500,000 and $750,000.
And there is Silicon Valley…. The land where the word ‘impossible’ does not exist in the local dictionary. There, the supply inventory of homes for sale is barely more than a month. That’s what you call a hot market. Believe it or not, in spite of it, a massive number of would-be sellers are still waiting for better times to sell! What do they know that I don’t?
Look at these crazy CAR August stats … In Santa Clara County, unit sales were down 19.7% BECAUSE the number of listings was down….69.6%! No wonder the median price skyrocketed 17.7% year over year! The picture is even worse in San Mateo County: sales down 22.6% because the listings are down 67.2%…While the median price was up 11.4%!
I suppose many sellers were – and still are- waiting for the traditional Silicon Valley IPO bonanza. Well, it’s here, but not quite as juicy as sellers & buyers were hoping for. I read last weekend in the WSJ (in an article from Shira Ovide & Ann Scott Thurm), that collectively, companies lost something like 9 billion in paper since their initial public offerings, over the last 16 months. It hurts, although there is plenty of money left to be shared.
The article notes that Facebook, for example, took a plunge of $7.2 billion, yet, the average non-executive employee is holding stock or stock options valued at $2.5 million. That can buy a nice pad in a nice town. Of course, executives can do a lot better and lots of terrific homes are now waiting for them on the flat of Atherton or the hills of Woodside, Los Altos Hills, or Hillsborough.
Perhaps a bit more concerning is the fact that start-ups are not developing in the valley as much as in the past, during the pre-recession days. This is especially true of immigrant-founded companies. According to Kent Hoover, from the Business Journal’s Washington bureau chief, the number of Silicon Valley start-ups founded by immigrants dropped from 52.4% to 43.9% over the last 6 years. That “reverse brain drain” is not exactly welcome at a time when job creation is the popular national motto.
Having said that, I am not worried about the future growth of the Silicon Valley and therefore the continued real estate momentum. There is just too much talent, innovation and venture money to fund it around here; but the slowing down of what has been a strong growth engine for the regional economy is yet another reason for sellers to sell, now that buyers are waiting in line. Make your day!