Will the real estate market in silicon valley lower in 2 years? If so, how much? What about interest rates?

Answer 1

I've lived here 20 years and even after the dot com bust, I saw no drop in real estate prices. Commercial properties became a lot cheaper, but housing did not suffer a similar reduction.

Answer 2

I wouldn't expect interest rates to go down soon.
Repossession of homes is on the rise.
Construction is being cut back.
The number of used homes on the market is rising.
Prices may drop in some areas.
In 2008 election year, there will be some downturn, IMHO.

I've lived through many Presidential elections.
I've never seen one where uncertainty was not prevalent. Immediatly after every election, normalcy returns. Nothing changes.

50 years in business, sh** happens just before the election. The negativity in campaigns screws with peoples minds.

Keep this and refer to it 2008.

Answer 3

Yes
How much will vary, the greatest will be seen in properties over $1million- trophy homes will go down as much as 30-40% in 1984 / this is what happened, and history always repeats itself. In the 80's interest rates were as high as 15-20% for loans over 500k, expect banks to repeat this again.

Answer 4

It is very unlikely prices will ever go down in that area, they are quite stable. As for interest rates there will be a drop around November and the end of the year, if I were in your position, I'd buy a home right around that time, as sales slow down and you might get a good deal.

That's if you want to purchase a home in that area.

Answer 5

Yes, Silicon Valley housing market is going through the early stage of correction. It is likely to take a couple years to resolve.

My estimate is 20%.

As for interests rate, during this year, short term interests rate will stay near 5.25% level to offset historically low long term rate, which is merely 5%.

I can't predict the short rate next year. It depends on the economy. Long rate will stay around 5% level or higher. It is already close to all time low comparing to past 40 years.

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During 1990's there were times when housing market in Silicon Valley went negative. At that time, housing correction takes a few years to resolve.

Today, in 2006, we are in the early stage of another housing correction . Please see this page:
http://www.viewfromsiliconvalley.com/id125.html

The "Year over Year" gain is only 1.7% for Santa Clara county. That is lowest ever in the past 5 years. If you include inflation figure, 1.7% gain is actually negative 1.8%, because inflation tops 3.5%.

In addition, sales volumn drops dramatically, which means high end properties garnished most of sales, keeping the medium price high. While less appealing properties stays on the market longer and longer.

Inventories build up as sales down. Inventory for single family grew to 2222 units in July from 1500 in January this year. Condo inventory grew from 658 to 841 units by July from January. Why is inventory growing while summer is suppose to be a good selling season.

It is true that Silicon Valley is less sensitive to high rates, because engineers have more income. I doubt they can escape the correction though. They certainly didn't during dot-com in 2000 bust.

Finally, please note San Mateo County has -2.0% medium price. Correction is in progress as we speak.

Finally, a couple more examples:

If you go to http://www.mlslistings.com/, the listing MLS#: 648284 dropped their asking price from $565 to $535 in one month.

And if you follow this link, this fellow needs help to sell his condo in Northern Cal.

http://answers.yahoo.com/question/index;_ylt=AqB3Src5MZhmZvLzjoyH5GPzy6IX?qid=20060918081440AAnWjCn
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How much will real estates drops in Silicon Vallye?

20%....

Housing market continues to slump. Now we can calculate true value of a property easily. As price decline, we don't need to guess and factor in the potential price appreciation while calculating home value. Without the guesswork, figures are more accurate.

Let's use following example:

Today, a typical 15 years old, two bedrooms condo/townhouse is priced around $500,000 and $550,000 in Sunnyvale, California. Rent for similar condo/townhouse is $2000/month.

If you are a home owner, $2,000/month in rent means $20,000 a year in profit ($24,000 per year in rent, minus $4,000 maintenance costs). A $20,000 income is equilevant of owning $400,000 bonds or CDs, because current yield of 30 Years U.S. treasuries are 5% (5% of $400,000 is $20,000). Bank CDs have similiar yields.

In our example, the two bedrooms condo/townhouse is 20% to 25% overpriced. They should be priced at $400,000.

It is interesting to note that if we redo the calculation from buyer's perspective instead of seller's perspective, the figures are even more shocking.

Mortgage payment consists of two parts: mortgage interests and mortgage principal. The interests portion is similar to rent. If you pay interest, it disappears and doesn't add equity to the property. To fully simulate characteristics of renting, we assume buyer will apply for a zero down, interest-only loan.

It turns out that rent of $2000/month is equivelant to mortgage payment of a $340,000 loan at 7.0% APR. And comparing $340,000 loan to $500,000 or $550,000 price tag, from buyer's view, the two bedrooms condo/townhouse is 30% to 35% overpriced.

One may ask, why is there a discrepancy between two perspectives of the buyer and owner?

The discrepancy is a result of 2% differences in interest rate that buyer borrow comparing to yields of bonds and CDs that owners would get. We understand that buyer would always pay more. That is the premium of buying to own. However, looking from home owner's perspective, current housing market is probably 20% to 25% overpriced. We recommand investors to wait for a better entry point.

Answer 6

nope.. Prices will flame up instead..