Inventories crash and prices soar in Silicon Valley's 'Condo Crunch'Posted by Danielle & David Contreras on Friday, August 3rd, 2012 at 12:59pm.
The condo market, long considered an affordable entry-level market, especially for first-time home buyers, isn't so easy to enter these days.
Supply is the culprit.
Depleted by investors, all-cash buyers and buyers with excellent credit and substantial down payments, inventories are also down due to a lack of sellers, often underwater homeowners who are unable to unload their home for enough to pay off the mortgage.
This June, Silicon Valley saw condo and townhome inventories plummet by nearly half, with active listings down by more than a whopping 82 percent from 1,442 a year ago, to a next-to-nothing 256 in June this year, according to data from the SanJoseHighRises.com Market Trend Reports.
Tight supplies helped push the median condo price up more than 26 percent from $305,100 to $385,650 during the same period.
Meanwhile median prices for single-family homes rose only 12 percent from $625,000 in June 2011 to $698,000 in June this year, as active listings fell from 3,840 to 1,277, dropping nearly 68 percent.
"It's 100% a seller's market," said David Contreras, a real estate consultant with HighRises.com - SiliconValleyTeam.
A closer look reveals the same low inventories-rising prices trend for condos in individual Silicon Valley cities and small geographic locations.
City of San Jose - Listings down 84 percent, prices up 18 percent.
Downtown San Jose - Listings down 84 percent, prices up 32 percent.
Palo Alto - Listings down 56.4 percent, prices up 11 percent.
Los Gatos - Listings down 64 percent, prices up 46 percent.
Cupertino - Listings down 76.5 percent, prices up 13 percent.
Condo prices throughout Santa Clara County remain less expensive than the single-family home market, but they are taking off.
"Basically that means there is a lot more competition and so you now have as many as 40 different buyers bidding against each other and that means 39 buyers will have to look for another property," Contreras added.
"The competition is fierce. If you are serious, you are going to have to get your hands dirty," he added referring to the rough and tumble nature of the Silicon Valley market, well out in front of the rest of the state's housing
Along with investors, often all-cash buyers who comprise 33 percent of the market, the competition also includes the new Silicon Valley millionaires thanks to a recent round of initial public offerings and renewed growth in the tech industry.
Contreras says buyers who were once "golden" not can't get a contract even when offering as much as $30,000 above the asking price.
"If you are not a serious buyer this market is not for you, You can drive around and look at houses all day long, but if you aren't serious with an approvel letter there is not much we can do to help" Contreras said.
Kenny Stephen, a senior loan officers with CHL Mortgage San Francisco CA, says for those who don't have money bags for an all-cash purchase but are in it to win it, a mortgage pre-approval is mandatory.
"You won't be able to view properties, you won't be able to write offers and some agents won't even look at you if you aren't pre-approved," Stephen said.
To obtain a pre-approval a loan officer will run a credit check, collect income documents and bank statements to verify what's on the mortgage application. The documents are actually submitted to the mortgage underwriter to validate the information and approve a mortgage.
A pre-approval is not to be confused with a pre-qualification.
"With a pre-qualification the lender is just scanning over the documents. Nobody wants to hear 'pre-qualification'. A pre-approval helps the buyer knows his limits, helps the agent know what to show the buyer and it shows the seller the money," Stephen said.