Santa Clara County Real Estate Update September 2024

The Santa Clara County real estate market has taken us on quite a ride in 2024. Conditions have been constantly evolving in response to various macroeconomic factors, including fluctuating interest rates, inventory levels, and buyer demand. Today’s email explores the current state of the market, focusing on how sellers are navigating these conditions and what key data points indicate whether the market is stable, slowing down, or accelerating.

As usual, I focus on the Santa Clara County market, as it is the key market for Silicon Valley and I believe the Bay Area as a whole. While the picture will be somewhat different in nearby counties, the dynamics are similar. What happens in Santa Clara County will be reflected throughout the regions as well.

Current Market Overview

As of fall 2024, Santa Clara County’s real estate market remains somewhat competitive for buyers but shows signs of shifting as various economic forces interact.

Key Indicators for Sellers

Several factors are shaping the market environment for home sellers in Santa Clara County:

1. Interest Rates Declining (somewehat): mortgage rates peaked in mid-2023 and have since experienced a modest decline. As of September 2024, the rate stands at 6.35%, down from previous highs, and about even with rates in June of 2023. While the Federal Reserve is expected to lower the prime rate at its upcoming September meeting, mortgage lenders have, for the most part, already factored this into the mortgage rates they are offering today. It will likely require additional Fed rate reductions to spur further cuts in the rates consumers pay for home mortgages.

2. Rising Inventory: one of the most critical aspects affecting the market for the past several years has been the relative dearth of homes for sale. However, 2024 has seen a significant increase in inventory. We began the month of September with 1,591 single-family homes available for purchase in Santa Clara County, vs, 1,190 homes a year ago – an increase in inventory of about 33.7%. That’s quite a bit more competition to have to contend with, making it more important than any time in recent years to employ a shrewd pricing strategy.

3. Home Prices Stabilizing: After several years of significant price appreciation, home prices in Santa Clara County have begun to stabilize. Prices remain high, but the frenetic price increases of 2021 and 2022 have cooled off, demanding that sellers have more realistic expectations of their sale prices. The median sales price of homes in the county has flattened in recent months but at approximately $1.84M remains about 5% higher than this time last year in 2023 (but down from an all-time record high set this spring).

4. Buyer Demand and Competition: While inventory has increased this year, buyer demand has remained healthy, buoyed recently by declining interest rates. Overbidding on list prices has slowed compared to the height of the market frenzy in 2021 and 2022, but sellers can still expect strong offers if their homes are priced appropriately. In fact, 62% of homes sold over list price in August of 2023 in Santa Clara County.

Days on Market and Speed of Sale

For sellers, one of the most critical data points is how quickly homes are selling. The average days on market (DOM) for a property in Santa Clara County currently hovers around 20-25 days, a slight increase from the ultra-competitive market conditions seen in previous years when homes would sell in 1-2 weeks on average. However, this timeframe still indicates a seller’s market, as most homes continue to move relatively quickly once listed. Sellers who price their homes competitively can still expect to receive offers in a short period of time, and sell over asking price.

Price Reductions on Active Listings

Another key indicator of the market’s current state is the number of price reductions on active listings. In August 2024, there was a slight uptick in price reductions vs. August 2023, but substantially lower than any month in the second half of 2022 (after the 2.5% mortgage rates vanished). While price reductions are a natural part of a stabilizing market, it’s a reminder that setting a realistic asking price is crucial for sellers who want to avoid having their homes sit on the market for too long.

Market Segments and Luxury Home Trends

Santa Clara County’s real estate market is highly segmented, with varying conditions across different price points and neighborhoods. The luxury market (homes priced at $5 million and above) continues to show strong performance, with significant sales in high-end areas such as Palo Alto, Los Gatos, and Saratoga.

However, the luxury market is more prone to fluctuations in buyer demand, and homes in this segment tend to stay on the market longer compared to more moderately priced homes.

The median sales price for luxury homes in Santa Clara County remains high, with some properties in prime locations continuing to see strong demand from affluent buyers, including international purchasers. However, the rate of sales in the luxury segment has slowed slightly compared to previous years, reflecting a broader market trend of stabilization.

Economic Outlook and Housing Affordability

The broader economic outlook for Santa Clara County remains positive, with many economists forecasting gradual improvements in housing affordability due to the expected decline in mortgage rates. The Federal Reserve’s indication that it may continue to lower interest rates over the next few quarters provides a hopeful sign for both buyers and sellers.

However, affordability continues to be a challenge for many first-time homebuyers in Santa Clara County, where home prices remain among the highest in the nation. The combination of high property values, 6%-plus mortgage rates, and expensive home insurance premiums has kept many potential buyers on the sidelines. For sellers, this means that while demand remains strong, the pool of qualified buyers is somewhat smaller than in previous years.

Seasonal Trends

As we enter the fall season, it’s important to recognize the seasonal nature of real estate. Historically, the fall market in the Bay Area tends to see a surge in activity as buyers who missed out during the spring and summer months seek to close deals before the winter slowdown. The fall 2024 market is no different, with a what feels like a typical uptick in buyer activity before the holidays.

However, the traditional winter slowdown, when fewer homes are listed, and buyer demand decreases, is expected to follow the fall surge. Sellers who are considering listing their homes will want to do so before late November to take advantage of the remaining fall demand.

Conclusion: A Seller’s Market, But Proceed with Caution

The Santa Clara County real estate market still remains a seller’s market late into 2024, driven by relatively low inventory, stable prices, and somewhat more favorable interest rates. Sellers are still in a good position, particularly those with homes in desirable locations and acheivable price points.

However, the market is not as frenetic as it was during the peak of the pandemic years (or even this time last year), and sellers should be mindful of pricing their homes so that they are the “obvious choice” for buyers at a time when buyers have more to choose from.

With the expectation of further interest rate cuts and continued demand for homes in the tech-centric Silicon Valley region, the outlook remains cautiously optimistic for home sellers. Nevertheless, it is important to recognize that the market is stabilizing, and the days of rapid price increases and “universal” bidding wars may be behind us. This makes strategic planning and savvy pricing more important than ever for sellers in Santa Clara County.