Rents up, rates down, a ray of hope: just what the affordable resale market needs?
While demand soars—and prices with it—for nice single-family homes in expensive blue-chip neighborhoods, we're still tsk-tsk-ing and shaking our heads over the uncertain future of the local affordable housing market. I'm talking about condos and townhomes in all but the hottest cities, and every type of housing stock in every city or neighborhood that doesn't have the complete package: deep infrastructure including great schools and shopping, plus plenty of prestige; in short, all the things, tangible and intangible, that make up "quality of life".
Everyone knows that the affordable housing market is hammered by:
Add to these gale-force headwinds the extreme caution of the typical first-time buyer, who wants only fair skies and sunny real estate weather before she buys, and the naive opportunism of many first-timers, waiting waiting waiting for that magic millisecond when both rates and prices intersect at millennial lows, and it's no wonder that the local affordable resale market has been dragging for years, except for the quick burst it got from the first-time buyer tax credit early last year.
But I'm seeing signs that this may change—and soon, not in ten years.
The first is the fact that affordable homes are selling more quickly this year than last, indicating stepped-up demand even as sales price, the indicator everyone obsesses on, remains flat or gently declines at the low end of the price range. This suggests that realistic buyers have stopped waiting for that screamin' deal down the road and "settled" for that screamin' deal today.
Second is my own experience with two home buyers this year, both conservative young professionals. One jumped in the resale market quickly to avoid signing another lease, and got a good deal on an inexpensive condo that had been bought on the courthouse steps, fixed up nicely and flipped into a market much softer than the flipper realized. The other, who's sat out the market for years, is back looking for a townhouse or small single-family home because her rent just went up substantially.
Third is the remarkable turnaround in the rental market this year. I doubt that a day goes by when I don't get at least one or two emails from colleagues with clients looking desperately for a place to rent. A few weeks ago I had to go through the kind of shenanigans once reserved for landing a buyer a home in dot-com Palo Alto just to get a client, downsizing from a large upscale home, into a nice-enough rental in a nice-enough area with enough bedrooms and attached two-car garage. Jump on it the moment it hits my in-box. Immediately make an as-is offer (offer? as-is? on a rental?) sight unseen, with no painting or cleaning required of the landlord, and my client paying rent the day the existing tenants move out. And there were one or two other concessions my client was willing to make that I held in reserve and didn't have to use. It could have been ugly, but thank God the tenants were easy on the home and left it professionally cleaned, the landlord turned out to be reasonable and his agent more than reasonable. But that's what it took to beat off the competition for a nice but not upgraded, reasonably-priced (but still 15 percent higher than the late 2008 rent) townhome.
Of course, everyone knows that one of the reasons there's so much demand for rentals these days is that the many foreclosed homeowners need a place to live, and they won't be buying homes anytime soon (although, on second thought, don't be so sure; individual and institutional memories tend to be short). But in this immediate area, foreclosed homeowners aren't a factor, either in the rental market or in the resale market. After leasing two apartments and two condos this year, I'm fairly confident I know who's renting now, and it reminds me a lot of early 1995, when Woodrow Wilson was in the White House and Henry Ford was paying his assembly-line workers $5 a week and darn good money it was too. Just kidding—I haven't been around quite that long—but back in '95 I was managing and leasing rentals, and that spring it was like someone flipped a switch. Apartment buildings that only months before had needed a rent reduction to attract the usual suspects were suddenly overwhelmed with applicants, and unusually well-qualified applicants at that. Not just the usual renters-for-life and renters-by-choice—nothing wrong with them, if you're a landlord—and not just the usual middle-aged men and women "in transition"—gotta feel for them—and not just the usual newbies straight out of college or their parents' home, but real-life grown-ups with nice homes back in Cleveland and great new jobs out here and a sophisticated attitude and a positive outlook I hadn't seen before. What started in late 1994, so small and subtle that no one noticed, exploded in spring 1995: start-ups, hiring a little at a time, a little at first, then more, then more, but still so under the radar that the Employment Development Department's monthly survey of major employers missed the trend all through 1995. A few years later those renters kick-started the resale market, because renter was never their self-image.
So things change quickly here, and anyone who falls into the tomorrow-will-be-just-like-today-only-more-so camp of E-Z future prediction should consider themselves warned. All the ingredients are simmering. A local economy that's just starting to rev up, again, as it always does periodically and always will, with the good times starting at the top and filtering down. Highly-educated successful people streaming into the area, as they always have since after World War II and always will. Rents rising sharply, up 9.4 percent in San Mateo County according to RealFacts, and the good stuff probably up even more. Interest rates reflecting the doom and gloom prevalent in many parts of the country and more than a few parts of the world, but not here if you're well-educated and in the right field.
So what's the hurry? No big hurry, really, because life always stands still, here in sleepy Silicon Valley.