May 4, 2005

Only lucky few realize home-buying dream in Willow Glen

Sellers’ market creates tough competition for buyers

By Sheila Sanchez
Staff Writer

Wondering why Willow Glen home prices are going through the roof?

The answer, according to experts, may be the small inventory of homes available in the South Bay, and more buyers than sellers canvassing neighborhoods in search for the perfect dwelling.

That combination, fueled by continued relatively low home-loan interest rates, makes for a field day for local real estate agents, mortgage lenders and homeowners wanting to make a profit on their properties to buy cheaper ones outside the expensive Bay Area.

Demand fuels sales
“It’s all demand,” said Mary Kirby, a real estate agent for the Saratoga-based Alain Pinel Realtors.

Leslie Appleton-Young, chief economist for the California Association of Realtors (CAR), agreed. Home values have been rising for the past two years because demand has exceeded supply, she said.

In the heart of San Jose, Appleton-Young said Willow Glen home prices have increased because of demographic demands created by population growth and because a large segment of the population is comprised of baby-boomers in their peak income earning years. These older buyers are purchasing second homes for their children and are too cautious to invest in the stock market.

She also noted the mortgage rate environment is still friendly enough, although it’s begun to increase. A 30-year mortgage rate climbed just above 6 percent last month, for the first time since last July. “They’ve been at historic lows for the last couple of years and that’s made a huge difference,” she said.

Appleton Young indicated flexible mortgage instruments in terms of interest-only loans and the “6 percent for three years” or “6 percent for five years” loans adjusting later have given buyers many below market rate financing opportunities.

The Federal Reserve, however, is now warning of a looming inflation, because of the persistent and risky high prices and credit made available to borrowers.

Mike Busch, a real estate agent with Re/Max, said once the demand for homes neutralizes supply will equal demand and prices may start to fall next year and multiple offers will decrease. The offers are driven by the low housing inventory.

He also noted last year was a sellers’ market too. He predicted that it would continue this way until December.

“Because of the low inventory right now people are battling for homes,” he said.

For example, Busch received more than 10 offers on the last four homes he sold. He recently sold a 30-year-old home, listed for $998,000, for $1.2 million—a $202,000 gain. “They (sellers) made a killing,” he said.

Multiple offers are a result of pricing the home under the market value—a home-selling technique used due to the high number of buyers out there, he said.

“When you price a home like that you get the fair market value for the property because the market decides the price,” Busch said. “Homes sitting for several days have been priced too high. People expect competition. I show homes to my clients a little below what they’re qualified for, otherwise they’re not in a position to win.”

Demanding this area
“Nobody wanted to live in Willow Glen 20 years ago. Now everybody wants to live here. The homes have so much character, and that’s what is driving a lot of people to this area,” he said.

Appleton-Young said the housing industry in California is weighted heavily toward trade-up buyers because first-time buyers have a difficult time getting into the market. That factor is making the state’s Central Valley grow rapidly. It’s also the reason other Southwestern states, such as Arizona and Nevada, are seeing cities like Tucson, Phoenix, Reno and Las Vegas grow strongly.

Buyers, sellers, lenders and real estate agents should enjoy the boom while it lasts.

The National Association of Realtors is predicting that interest rates are likely to be 11 percent or above by 2007. It’s also anticipating real estate sales will level off because of the increase in the rates.

The median and average price for a single family home in Willow Glen is $820,000 and $876,025, respectively. The median and average price for condominium in Willow Glen is $520,000 and $502,000, respectively. In the Cambrian area, median and average prices for single family homes are $690,000 and $723,000, while median and average prices for townhouses and condo are $415.000 and $438,000, respectively.

“It’s location that really matters,” Kirby said. “When you’re talking about new locations you’re generally talking about areas where there’s still demand to grow on, but in the areas that are in high demand like Willow Glen there’s practically no room for expansion,” she said.

Kirby just sold a home in Daly City where the buyers were lured by its close proximity to BART, the ocean and a golf course. The home was purchased for $500,000 two years ago. After the owner invested $40,000 remodeling it, he listed it for $749,000 and sold it for $802,000. The appraised value was $775,000.

Kirby’s selling strategy, like Busch’s, was to review all offers that came in during the home’s open house motivating buyers to compete. “It helps to motivate the buyers. [That way] Things go very rapidly,” she said.

What about the bubble theory?
Kirby, Appleton-Young and Busch believe, as do a large majority of real estate experts, that housing demand will continue strong in the future, although they do predict a small slowdown next year.

“We don’t believe there’s going to be a bubble that’s going to burst. They’ve been complaining about a bubble for several years,” Kirby said.

The only time that real estate crashed was after the Sept. 11, 2001 terrorist attacks, she said and given the impact of the tragedy on the economy, real estate picked up rapidly and remained one of the strongest economic survivors.

Appleton-Young doesn’t anticipate a significant sustained drop in housing prices either. She said for the bubble to burst there would have to be cyclical economic factors from a major economic calamity such as recession, which would cause high unemployment rates and population exodus.

“You would need a big increase in supply. That would happen only if people move or if mortgage rates get so high that people wouldn’t be able to afford the financing or if so many investors are in the market that they just sell quickly to make a profit,” she said.

“We’re definitely seeing a slowing in the rate of appreciation,” she said. “CAR’s forecast for this year is for soft landing in 2005 and drops of 2.5 percent in sales and 21 percent in appreciation over 2004 in the statewide median home price down to 15 percent this year.

“Housing prices go up and housing prices go down. We’re not seeing a bubble,” she said.

Areas listed above: 002 = Santa Teresa 003 = Evergreen 004 = East Valley 010 = Willow Glen 012 = Blossom Valley 013 = Almaden Valley 014 = Cambrian

For more information on real estate log onto www.car.org.