Another year has drawn to a close in the San Carlos residential real estate market, and like every year in the past decade, there are lots of numbers to look at and lots of stories to tell. In this multi-part series on the White Oaks Blog, we’ll take an in-depth look at some of those numbers and stories that drove our local market in 2015.
In Part II yesterday, we discussed how the record low level of new listings in San Carlos was a major factor in driving the average home sale price to record heights in 2015. In our final installment below, we’ll take a look at what’s potentially in store for the San Carlos real estate market in 2016.
More of the Same?
One of the wonderful things that happens every January is that we get to look ahead and try to *predict* what’s going to happen to the real estate market in the coming year. Nobody that I know in this business (myself included) predicted that the average price of a single-family home in San Carlos would experience double-digit growth for 4 consecutive years starting in 2011, and that by 2016 the average price for a home in San Carlos would top $1.6M. It seems that every year we think the market is going to level off a bit, it storms out of the gates in January and blows the lid off of everyone’s expectations.
So what will happen in 2016 if prices continue to grow at the same rate they did in 2015? Well, try this on for size:
- The average price for a home in San Carlos would then be about $1,920,457.
- The average price for a 3BR home (the staple of the San Carlos housing inventory) anywhere in San Carlos will hit $1,689,514.
- The average price of a condo or townhouse in San Carlos would then top $1,055,000.
So, is that going to happen in 2016? I’ve learned my lesson to not make bold predictions either way in this market, but here are some of the key influences that will come into play in the new year.
Market Influences in 2016.
2016 will be unique from past years because some of the underlying forces that directly influence the market are changing. It will be interesting to see what impact, if any, these have on our local micro-real estate market. Here are a few:
- Interest Rates. For the first time in a decade, the Federal Reserve has actually raised the prime lending rate incrementally, and left the door open to doing it again in 2016 if necessary. What has been the impact so far? Almost negligible. The mortgage interest rates took a temporary blip upward shortly after the announcement, but they settled right back down to the same level shortly thereafter. The impact of future increases will be more significant for those home buyers who are borrowing the full 80% of their purchase. But for now, it’s business as usual.
- Technology Job Market. San Carlos is just like other communities along the Peninsula in that many of its residents are either directly or indirectly involved in technology and biotech careers. As those job markets go, so follows the real estate market locally. It appears that the big companies such as Google, Facebook, LinkedIn, Genentech, and Gilead still have far more job openings than they do candidates. What you may see happen in 2016 is the normal Darwin effect on startups as they go back for subsequent rounds of financing. Just like any other technology boom, not all of these companies will make it to the top, and I believe this is the year you may see some startups either get absorbed, or simply not make the next cut. That may trim the buyer pool slightly.
- China. It has been well documented how much of an impact foreign investment has had in the past 5 years on the local real estate market. But only a few communities truly reaped a direct benefit from this — Palo Alto, Atherton, Woodside, and Hillsborough to name a few. People often incorrectly link the flow of foreign investment to the San Carlos real estate market, but that’s a stretch. San Carlos is what I refer to as “the upper-middle working class of Silicon Valley”. The typical make-up of a San Carlos home is two incomes, usually at least one directly involved in technology. It’s not a community where foreign investors are looking to park their money, often buying up property sight-unseen. So as this flow of foreign investment money slowed significantly last year and was felt hard in the expensive neighborhoods, it had no effect on our local market. That’s simply not where our buyer pool comes from. However, if a slowing economy in China indicative of a broader technology slowdown (point #2 above)…that’s a much different story.
- Election Year. I hear a lot of talk about how Presidential election years serve to temper the real estate market. I don’t buy it. Just look at the chart in Part I of this series, and you’ll see that the Presidential election of 2012 had no impact on the meteoric growth in the market.
- Stock Market. The funds that most home buyers will use to purchase a home this coming year– whether it’s the down payment or the entire payment — is currently held as some sort of equity while they look to find the right home. A significant swing either way in the stock market will indeed have a direct impact on their buying power, and so far in 2016 the market has been quite volatile in just the first few trading sessions. This could come into significant play in 2016.
So what’s in store for the San Carlos housing market in 2016? Unfortunately for prospective buyers, I think prices will continue to rise. There just hasn’t been enough change in the forces that shaped the 2015 housing market to dictate a leveling off or even a downturn in housing prices. How much the market will grow is anyone’s guess, and it will be largely on the back of the buying population to determine how much is ultimately too much.
Stay tuned to the White Oaks Blog in 2016 as we track and analyze the market every week. In this market, being informed is being armed.
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