5 trends the housing market will regret?

According to a recent survey by ValueInsured, home buyers complain that “tight inventory and rising home prices are causing several negative trends in the housing market”.

I’m shocked!  Shocked!

See?

Looks like the rest of the country is going through the kind of market Silicon Valley has known for most of the past nineteen years.  It’s a market where buyers have to take risks–preferably calculated risks–to get a house.  Valley buyers have never been particularly happy about this, but enough have rolled the dice to keep our market perhaps the hottest in the country in terms of days on market and absorption rate.

But now home buyers out in the hinterlands are grumpin’ about conditions that were once the Valley’s signature features:

  1.  “The ‘no inspection’ trend”:  I don’t know if other parts of the country have adopted the Valley’s practice of having sellers do inspections (note plural) before putting their home on the market, then including the inspections and all other disclosures in a lengthy tome called the “disclosure package”.  But I doubt it, based on my limited experience with markets outside the Bay Area and Central Coast, and that’s indeed a problem.  The upside of seller inspections is that Valley buyers get at least some idea of the home’s condition before they sign on the dotted line, mitigating to some extent the risk they take by not having their own inspections.  The downside is the fine print in the inspections, which says that only the client of the inspector–in this case, the seller–can rely on the reports.  How can people live like this?  In a region with multiple buyers for each house, sellers have the leverage.  This makes them disinclined to accept an offer with an inspection contingency (or any contingency), since it gives that leverage right back to the buyer.
  2. “The ‘offer sight unseen’ trend”:  Makes all kinds of sense for developers and others buying the home for the land it sits on.  Of course, neighborhood and location are at least as important as granite, stainless steel and hardwood, but out-of-area investors can’t fly here every week-end to hit the open houses and, to a certain extent, the internet (Google Maps, Streetview, demographics and crime statistics sites) can give them a general idea of the neighborhood they’re buying into.  It’s not a perfect substitute, but it seems to be an acceptable risk (there’s that word again) for many.
  3. “The ‘co-buying with strangers’ trend”:  I’ve only seen this once, and it didn’t turn out well.  I doubt that this is the next trend to sweep Silicon Valley. but I’ve been surprised once or twice before.  The problems I see with “co-buying” is that buyers can have differing medium- and long-term plans, unequal financial strength (with one partner perceived as the “weak link”), and varying commitment to home buying.  Congratulations to anyone who’s pulled it off–investor pools have been buying investment properties for years–but the challenges I’ve mentioned and, in particular, the emotion that’s such a big (and necessary) part of buying a primary residence seem to mitigate against strangers co-buying Home Sweet Home.
  4. “The ‘cashing out from retirement savings’ trend”:  In an area where stock market wealth plays such a huge role in home purchasing, the idea that savings assets should be left untouched seems quaint.  And, in an area that’s returned spectacular price appreciation over the past twenty years, a bit naïve.
  5. “The ‘tiny home’ trend”:  Another trend I haven’t noticed around here, at least in the usual sense, although one local solution to the housing crisis, micro-units, could fall into this category.  In fact, a few tiny home manufacturers are touting the idea of stacking modular 400-500 sq.ft. homes to build tiny medium-rise apartment buildings.  This might be one solution to homelessness, but as market-rate housing, particularly rentals, micros look like a lock for “housing type most likely to tank big time in the next downturn”.  Even with granite, they’re the bottom of the housing food chain, and the bottom is a rough place when things get tough.

Anything here that the Silicon Valley real estate market will regret?  Multiple offers and cashing out stock positions have been fixtures of local real estate for at least twenty years, so it seems a bit late for regrets.  Sight-unseen buyers won’t have regrets as long as the market lets them make money building spec homes.  Co-buying faces considerable challenges before it catches on.

Tiny homes?  “Act in haste, repent at leisure”.

copyright © John Fyten 2017

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