This Feels Like a Market Bottom

This Feels Like a Market Bottom

I have been seeing a few signs lately which have me believing we have seen our market bottom for the Palo Alto area real estate market and it is here and now.

Buying Activity – the past couple of weeks we have seen a burst of buyer activity. At this point the evidence is primarily anecdotal – agents talking about a sharp increase in the number of phone calls, emails and property showings. These activities take time to show up in MLS statistics but you can be sure it is only a matter of time before we see this activity result in more closings.

Capitulation – Recently I have seen a few sales get done at prices much lower than the asking price. Typically, rather than allow a buyer to negotiate a price less than 90% of asking, sellers will drop the price by some smaller amount in the MLS and give the price reduction some time to bring in the next layer of buyers. Some of these recent sales lead me to feel that some sellers are throwing in the towel. It is at just this point, when fear is the greatest, that markets of all types are at their inflection point, a market bottom. Additionally, for the past two months, the key ratio of Pending Sales to Total Inventory has moved higher, with the cumulative effect showing the Real Estate market moving from a clear Buyers Market to a more neutral market.
In a couple of months we will be in what is traditionally considered to be our peak buying months in the Palo Alto area. I just don’t believe you will see sellers capitulating if they see the stock market strong with more and more homes going “pending”.

Stock Market Prognosticators – It seems many of the talking heads are jumping on the “stock market bottom” bandwagon. The greater Palo Alto area real estate market is more sensitive to the stock market than most of the country. Many buyers are in one way or another vested in the stock market. Finding the bottom for real estate on the peninsula requires some serious consideration of this point

Just as in stock market bounces, the Palo Alto are real estate market can turn on a dime because here it is all about state of mind. Buyers have the wherewithal to buy and the desire to buy, they just need the timing to be right. I am definitely seeing an increase in the number of buyers contacting me and telling me they think the timing is right. It may take a couple of months for the statistics to accurately reflect this change in sentiment. By then you are chasing the market back up. Since it is almost impossible to pick the bottom I would encourage buyers and sellers alike to put some serious consideration into the possibility that the Palo Alto real estate market is here and now.

Spring is in the air – Spring is typically when the Palo Alto area real estate market starts to get moving after the doldrums of winter. This past winter was particularly stark due to the financial crisis. We are now seeing a normal cyclical uptick in activity combined with an improved state of mind for buyers. This should lead to an uptick in prices as well. From here, this cyclical activity will lead us out of the market doldrums and carry us into next winter and by then the local economy as well as the Palo Alto area real estate market will be in better shape and prevent a return to the lows.

No one knows anything for sure but I feel some optimism out there and optimism is sufficient to cause sellers to hold their ground rather than throw in the towel.