I was talking to two successful Silicon Valley executives who are keen about buying homes, but frustrated with the lack of available inventory. What’s ironic is that lack of inventory has artificially inflated the value of the homes which creates more anxiety and frustrations for these buyers who remember the real estate crash of 2006 and don’t want
1) Over Paying: These buyers are not so much concerned that they are buying at the peak of the market, but they are concerned about over-paying. There is a subtle distinction here since if the market continues to rise, they are fine with buying at top of the market. However, if these homes are overpriced because of lack of inventory, what will happen when the market returns to normal. The home they paid $1.4M could have a neighbor selling for $1.0 with the few months after their purchase closes.
2) Tech Bubble: The Tech-Fueled Silicon Valley boom has some dark clouds in the horizon specially when it comes to affordability of housing. The folks who are working low wage jobs at these companies are not able to afford to live anywhere near the metro area. One bedroom condo in San Francisco is now renting for $3,800-4,000 per month. There is no way a family with 2 working parents earning minimum wage can afford to live in the City anymore.
The concern of the buyers here again are for another real estate crash if the tech bubble bursts. Will they be holding properties with under water mortgages?
3) Rising Mortgage Rates: Least important but still significant concern these savvy buyers are expressing is the climate of rising interest rates. Even a 0.25% hike in interest rates adds up to significant amount of money you end up paying over the life of your loan.
What is keeping you guys on the side lines?