Categories: Blog

Bay Area Real Estate Market Cooldown

The Bay Area real estate market has been cooling for a while and many investors are feeling the impact of the slowdown (ask me how I know 😂).

The uncertainty in the stock market is limiting some buyers from entering the housing market. They don’t want to sell their shares at a loss to fund the down payment on a home. Some buyers are expecting a recession and would rather wait for “The Bottom” before buying their home.

2020 is also an election year, which is a historically bad time for the stock market and for the housing market.

Buyers Are Now Incredibly Picky

Buyers will wait for properties to sit on the market for 30+ days and will wait for a $50k+ reduction before throwing out a lowball offer on a home that they would have overbid by $100k a year ago just to get a chance at getting the property under contract.

Prices Are Dropping

According to an article written by ZeroHedge (thanks for showing me the link Mr. Glover!), some of the largest price drops (YoY) are cities in the South Bay and the Peninsula:

Sunnyvale: -14.5%
Santa Clara: -13.2%
Palo Alto: -12.3%
Saratoga: -11.9%
Los Altos: -11.6%
Cupertino: -11.5%
Milpitas: -10.7%
San Jose: -9.3%
Mountain View: -8.9%

Prices are expected to continue the downward trend through 2019 into 2020.

Investors Need To Be Cautious

It’s a very risky time for investors to purchase new rehab projects. They need to be overly conservative in case the market slides more.

Investors need to think of creative and alternative strategies to be successful in this business when the traditional fix/flip model may not work or may be too risky. This could be though a value add play, where you add square footage to an existing building, or through an entitlement play, where you go through the process of getting a building approved through planning and sell the approved plans and land to a developer.

It’s A Great Time For Buyers!

This is a great time for buyers who have been wanting to purchase a property in the Bay Area for a long time but couldn’t! Mortgage interest rates are incredibly low. I’ve heard of some folks getting 30 year fixed rates for under 3%! It’s also a great time to buy if you’re a buy and hold investor in the Bay Area.

Remember how it felt in 2017?

The market was extremely hot and it was nearly impossible to find good deals. We all wished we bought properties in 2009-2012, but in 2009-2012, everyone was terrified of buying properties. Some people thought that the market would never recover. That sentiment seems familiar right now. People are scared of buying, prices are low, and interest rates are low. Now’s your chance to get in the game.

In a few years, I predict that people wish they could turn back time and buy at late 2019 prices. The Bay area is a great place to live, and tech jobs are increasing their base salaries at an astonishing rate. I wouldn’t be surprised to see home prices double in the next decade.

What are your thoughts? How are you going to take advantage of this market slowdown?