In the last post, we discussed predictions for the 2016 real estate market, primarily in the Bay Area, and how it is our belief that we are entering a period of normalization. The economic conditions in China that have given rise to the correction in their own market, as well as our’s, has further underscored our belief that we will be venturing into new territory with the 2016 real estate market. It’s hard to argue otherwise since demand for real estate is tied to consumer confidence, and that is clearly being shaken by global market events of the past few weeks.
What does this mean for Lafayette Real Estate in 2016?
Based upon data from the last quarter of 2015, we are still in a “seller’s market”, however it is impossible to tell how long that will last given the volatility of world financial markets and geo-political climate.
Our view is that we have entered into a new phase of market normalization with the cost of money beginning to move toward market rates with diminishing Fed subsidies. Prices will normalize during this process with appreciation rates in the mid-single digit range — dependent upon the unpredictable nature of the world economy and events. When people are feeling threatened or times are uncertain, they become more cautious and conservative in their purchase behavior. It’s simple human nature.
Fortunately, the underlying strength of the Bay Area economy remains an oasis within the greater US or even CA economy. The market will be tougher on tech startups in 2016, but that doesn’t affect the broader Bay Area economy. Bay Area tech companies that have become household names, such as Google, Facebook, Twitter, and Apple should all continue to be strong in 2016, and continue as foundational underpinnings of our area’s tech sector.
The Changing Real Estate Dynamic of Buyers vs. Sellers
Let’s begin with sellers. They always face challenges during a transitional market, except when the market is on a virtual rocket ship heading upwards, as it was over many of the last several years. Sellers are emotionally tied to their “product”, and objectivity sometimes gets lost in the understandable wave of emotions associated with the process. It is going to be important for sellers to be realistic about the pricing of their homes in 2016.
Whereas, the best comparable sales for Lafayette real estate from 2015 may provide some guidance on pricing, it will also be very important to look at current market velocity, inventories and changing economic sentiment. I expect to see more homes initially over-priced in 2016, than the other way around. The volatility in financial markets and geopolitical climate instability will likely be with us throughout 2016, and will inevitably impact consumer purchase behavior.
Buyers should look at 2016 as an opportunity to jump in as the dynamics between buyer-seller shifts back towards a more even balance of power, and before payments rise further due to interest rate hikes. They should expect more negotiating power than they’ve had in the past, but that is always dependent upon timing and available inventory. We believe that we will see more inventory in 2016 as Lafayette real estate owners transition out of their need for larger homes with a premium value due to being in the Lafayette School District. Also, many are realizing that there are excellent alternative areas to live in, including the newly constructed local inventory of condos targeted to Lafayette down-sizers.