What's up with the market?!
I sell a lot of homes in San Anselmo, Fairfax etc. My colleague recently listed a home on Oak Knoll for $1,199,000.
She received nine offers. Two were all cash for exactly the same price, $1,500,000, I believe. There was a multiple counter offer given. It eventually sold to one of them for $1,601,00. That is 34% over the list price. $400,000 over list! Does anybody else think that the market is just a bit out of control?
My colleagues keep mentioning interest rate changes as the lever that will derail the market place. I am going to go out on a limb here and disagree. I do agree that there will be a market correction. The reason will be driven less by interest rates than by office space. What I mean is this: Right now the average price of a home in San Francisco is $1,100,000. What is driving THAT? Jobs. So many new and anticipated jobs that right now there is 3.1 million sq feet of office space under construction in the City to companies such as Sales Force, LinkedIn, and Dropbox-with another 3.8 million sq feet under discussion. They will need to staff those offices. And the staff will need to live somewhere. Where are they going to go? Since the jobs are City centric, the new employees will look in SF first. After, getting out bid and discouraged, if they are young and childless, they will look East towards Oakland near the BART line. Those with families will check out Marin (and Walnut Creek etc) because it is affordable vis a vis public vs private school discussions. OF course quality of life will drive many here to Marin as well. I am speaking in the future tense. Yet, we already see this happening.
So back to my colleagues that think interest rates will derail the housing market. If interest rates creep up even a full point over a year, do you think with so many new jobs and new housing needs, that pricing is going to correct? No way. A $800,000 loan at 4.2% interest sets you back about $3,900 a month. A 5.2% loan of the same amount will cost $4,400. Between the number of all cash and cash heavy buyers and the incomes that these new companies are providing, we are going to find more than enough anxious Buyers willing to spend $4400 and then some. But wait, I did mention a price correction. So, if interest rates aren't the culprit what is and when???
Let's start with what is fueling the new office space. VC. Venture capital money. Where does that come from? The Stock Market is at an all time high. There is A LOT of money out there seeking the NEXT BIG THING. So, what would happen if the stock market were to correct itself? Well, if venture capital dries up, and pulls out of companies that are currently poised to grow, then, the pressure on housing stock vis a vis new hires would potentially change the demand and thus possibly the pricing because the hiring would freeze.
There are two other factors, though, that have to be considered. 1. Lack of inventory. 2. Foreign investment. We are running at about two and half months of inventory. That is really low for this time of year. This has been a big issue for the past two years. Marin's seniors are staying put; the alternatives are few and expensive. Re, #2- If Foreign investors continue to buy Real Estate, then we may also not see much of a correction either.
I have a dark horse entry as well for factors effecting Real Estate values: Water. The state has enough water for one more year. Who has the water and how much that water costs is going to also play into home values. Marin's resevoirs received a Christmas present in December. The big storms FILLED our near dry resevoirs. While it bought us an extra year past the State's challenges, we are also going to be feeling the impact of the drought very, very soon. I don't know how that will effect Marin Housing pricing yet. Do you? If so, email me with your thoughts: [email protected]
In conclusion, I think we will have continued run away pricing growth in Marin due to SF hires for at least this year. Rising Interest rates ?--it isn't going to change a darn thing as long as VC continues it's reckless ways in the Bay Area. When (not "if") the stock market corrects itself, we will finally see some price stability in Marin. But, if Foreign investment in Real Estate is not curbed by other international pressures, then our price correction may be tempered. Further, as long as Marin's Seniors have few afforbable choices about where to go, they aren't going to move and free up our limited housing stock, either.
What do you think? Agree? Disagree? Have another theory? Please reach out to me at [email protected]