February Market Update

With Valentine's Day around the corner, it's interesting to see today's consumers either loving or hating the real estate market right now. This market is like a two-sided coin with polar perspectives depending on what side you are on. For would-be buyers, the real estate market looks encouraging as sales and prices are showing a decline and we have officially shifted from a sellers  market to a more even keeled housing market. On the other hand, for sellers and investors, it’s looking a little more bleak as properties are staying on the market a little longer and we're seeing an average 10% decline in value compared to last summer when buyers were scrambling in a market with low inventory and rising rates. Right now, sellers tend to be a little more tense and anxious vs buyers who are now more laid back.  In my opinion, unless you are "flipping" properties, sellers shouldn't worry too much considering the huge gains we've seen in the past 7 years. 


Speaking of flippers, the investors I know typically look to have a minimum 12-15% gain on their short term investments. With the market adjusting, I believe that now is the time to be a little more conservative in making valuations and spend a little less money on upgrades to preserve margins. There are definitely buyers out there willing to pay top dollar for fully remodeled homes, but since homes aren't flying off the shelves like before, sellers not only have to be a little more patient in waiting for the right offer, but also take into consideration that there are holding costs associated with selling a property.  For example, for the past two weeks, we've seen some big drivers in the market (stormy weather and Superbowl Sunday) that greatly impact open house activity from one week to the next.  The buyers are out there, but they might've been busy this weekend or afraid of the rain, so give the homes a little more time to marinate before hastily reducing prices....just some points to consider.


Another new factor affecting today's market values are appraisals. I have noticed that many appraisers are being a lot more timid in their valuations.   I have seen multiple appraisals come in lower than purchase price, specifically notating that we are in a declining market. If the buyer doesn't have the funds to pay the difference between purchase price and appraised value and the sellers are not willing to sell at a lower amount, transactions to fall through and more homes revert to the "back on the market" status.  The definition of "Market Value" is the highest price an able and willing buyer is able to pay for a property in a competitive market place. However, when a buyer is getting a loan, appraisers take on the role as gatekeepers for the banks. As a buyer if you don't have much of a downpayment, it may be a good idea to keep that appraisal contingency in place so you have an opportunity to negotiate if you don't have the funds to bring in to close.


Contrary to how it sounds, this is not a market undergoing an extreme change. The sky is definitely not falling. Rather, I think we are in a subtle transformation which is good for everyone involved. As long as prices don’t crash past the 20% mark (which I see no signs of), everyone should be fine. Homes are typically selling within 45 days and many overpriced homes on the market sell soon after slight price reductions. Lending was so tight for the past 7 years that a lion's share of consumers put at least 20% downpayment in order to purchase in the Bay Area. That means, most everyone's got some substantial skin in the game that they won't be quick to let go. In addition, there’s going to be a ton of fresh money coming from several huge IPO’s in the spring that will fuel our Bay Area economy. This is not a bubble. I believe there's real money here in the Bay Area and we will continue to thrive.


As a company that represents both buyers and sellers, we love this market! In January, Hatch Realty closed 7 transactions and we’re gearing up for a strong February as well. Many buyers and sellers are starting to wake up from their winter solstice and now considering a move. January was the perfect month for buyers to get into a home without much competition, but I think things will heat up a little more this month with more buyers and hopefully more inventory to go around. We are still at a shortage of homes for sale, so if you or someone you know is in the market to buy or sell, please call us for a free market analysis . We are happy to help!