What Low Inventory Means in Silicon Valley’s Housing Market

Throughout the entire country, the inventory of homes for sale has been gradually declining over the past decade. We know this fact thanks to statistics from the National Association of Realtors. Depending on where you live or where you are trying to purchase a house, you may also recognize the signs of low inventory firsthand. In particular, the Silicon Valley area has hit historically low inventory rates during 2018.

If you tried to buy or sell a house this past year, you undoubtedly saw the side effects of this inventory shortage. Even if you didn’t, though, you can probably guess at what happened. It’s the simplest law of economics that low supply and high demand leads to price increases. The limited housing inventory in Silicon Valley fulfills the low supply part of the rule. Silicon Valley fits the demand side, too. Between the area’s booming business environment, plentiful networking opportunities, vibrant community, gorgeous weather, and delicious dining scene (to name just a few perks), Silicon Valley is the place where a lot of people want to be.

The combination of low supply and high demand has turned Silicon Valley into one of the most competitive real estate markets in the country. Consequences of the low inventory/high demand situation include:

  • More competition for properties: When a property does hit the market in Silicon Valley—be it in Cupertino, San Mateo, or Fremont—competition immediately becomes frantic. Many buyers would like to purchase homes in these areas, which means bidding wars and higher sale prices, among other things. The high demand for living space in Silicon Valley also means that more investors are eyeing for-sale properties as business opportunities. Some investors intend to renovate existing properties and turn them into even higher-value assets. Others purchase homes or condos with the intention of renting them out to other tenants.
  • High listing prices: In 2017, the median sale price for homes in the United States was $232,000. In Santa Clara, it was 1,097,000. Appraisers, realtors, and sellers in Santa Clara—and all throughout Silicon Valley—were well aware of the property values in their area. As a result, asking prices for homes were higher across the board than they were for virtually anywhere else in the country. Simply put, sellers are seeing the opportunity to get a lot of money for their houses—and are seizing it.
  • Brief listings: There isn’t much time in Silicon Valley to mull over real estate purchases. Because listings in this area are few and far between these days, the ones that do crop up tend to sell within a matter of days.
  • Homes selling above asking prices: Throughout Silicon Valley this year, 60-70% of homes were selling above asking price. Buyers understand how limited the area’s housing inventory is and are getting aggressive to stake claims on Silicon Valley real estate. The regularity of bidding wars—more common in a low supply/high demand inventory—are pushing sale prices higher and leaving asking prices in the dust.
  • Unpredictable fluctuations: While we’ve mentioned some statistics in this article, the fact is that, with inventory low, statisticians don’t have a big enough sample size to compile accurate numbers. You can cite median sale price statistics, for instance, but when there aren’t that many homes selling, those statistics only mean so much. The limited statistics mean that the market in Silicon Valley is fluctuating quickly and unpredictably. Median prices made considerable jumps throughout Silicon Valley this year, almost always in the upward direction. With no sign of the market cooling down, buyers, sellers, and investors should all be aware of how quickly these numbers can change. In fact, the quick fluctuations could explain why buyers in Silicon Valley are so eager to buy, even if they are paying significantly above asking price: next month, the prices will probably be higher.

Whether you are trying to find Santa Clara homes for sale or sell a house in Willow Glen, Twinley Homes might be able to help. We buy and sell distressed properties throughout the region, as well as developing new construction opportunities. Contact us here or give us a call at 408-909-TWIN (8946) to learn a bit about what we might be able to do for you!