mar15
TRANSCRIPT
Nicholas French, Broker Associate
March 1, 2015
Volume 10, Issue 2
Quarterly Review
Nicholas French
Broker Associate
369 S. San Antonio Road
Los Altos, CA 94022
650 773 8000 (cell)
650 947 2999 (office)
650 887‐0399 (fax)
www.realtornickfrench.com
Inside this issue:
Foreign Investors vs. Millennials: Future of Real Estate
1
Foreign Investors vs. Millennials: Future of Real Estate (cont.)
2
The Market’s Achilles
Heel?
3
Average Sale Price History ‐2006 to Present
4
Bay Area Commute
Sta s cs
2
Foreign Investors vs. Millennials: Future of Real Estate
You have likely heard about foreign investors buying up real estate in mass volume with suitcases of
cash. Experts and ar cles suggest this newer phenomena is driving the market with no end in sight
with sta s cs suppor ng these claims. I hear this conversa on con nue at coffee shops, dinner par‐
es and the like. I would like to suggest that the fear‐mongering mentality of the news media has the
goal to get the a en on of the audience by selling stories, so I would like to provide an alterna ve
perspec ve that I have assessed through my daily interac ons with clients.
Interna onal buyers are not a new segment of the local market. I have been represen ng interna‐
onal buyers for over 13 years. I’ve helped them locate primary homes and investment proper es for
their families. These transac ons have been with cash or financed through interna onal lending pro‐
grams via ins tu ons such as HSBC. Why are they interested? There are mul ple reasons to pur‐
chase local real estate as a foreign inves‐
tor: establish residency for a business,
children’s US‐based educa on, planned
immigra on or diversifying one’s por o‐
lio, to name a few. My clients come from
all parts of our great world, but the
growth of foreign investor interest, in
par cular over the past several years, has
been driven by the significant drop in US
real estate values and overseas regula‐
ons crea ng be er opportuni es to diversify. Previously, at my state‐level real estate leadership
mee ngs, I heard li le conversa on on interna onal inves ng other than in the metropolitan areas,
so possibly now the foreign inves ng is more widespread, which has captured the a en on of our
community. Either way, interna onal inves ng has been a segment of the market just as buyers look‐
ing to up‐size or down‐size, so we expect and accept it. Since the great recession, we have seen a
rapid growth in property values, locally exceeding 50%, that can be a ributed to both domes c and
foreign buyers. At what seemed to be the height of the market‐run in 2012, we experienced tour
buses full of investors standing in line to buy discounted real estate with either cash or very cheap
money due to the interest rates. Interna onal inves ng seems to have been a more significant part of
our current market cycle than previous cycles, but it is not the only variable.
If foreign investors weren’t the cause for the run‐up of real estate values, what was? I suggest that
cheap, cheap money was the single leading cause of our rapid growth. Lending ins tu ons have
been lending prac cally free money to borrowers who in turn bought low‐priced real estate. The dirt‐
cheap money should hopefully be coming to an end soon, but not before it fueled a historic run on
property values. Ge ng back to a state of normalcy in rates (rather than near zero) should indicate
our market’s health, though ge ng off free money will likely hurt in the short term. There is more to
Percentage of Interna onal Buyers: US Real Estate
(cont. pg.2)
Page 2
Quarterly Review
Foreign Investors vs. Millennials: Future of Real Estate (cont.) It than just free money; you need mo vated and confident buyers and willing sellers. It seems that finding the la er is our challenge,
though not an uncommon one. The heavy inves ng in our local tech sector, enhanced by cheap money, has fueled confidence, in‐
creased salaries with companies wooing top talent and brought an influx of people to our area figh ng not only for the top jobs, but
homes. One of the most unique aspects to this market condi on is what appears to be the youthful age of such intelligent individuals
gaining the a en on of venture capitalists and corporate leadership. I believe we are in the midst of a paradigm shi in how we u ‐
lize technology in our lives, which will inevitably result in a change to how we live day to day.
As a na ve to the Silicon Valley I have witnessed significant changes during my life me. My mul ‐genera onal (6th genera on) roots
in the Bay Area has given me perspec ve on the value of our communi es and what drives its growth. I have witnessed a genera on‐
al shi : original families who made homes in our sprawling communi es of the 1950‐60’s are making way for the next genera on of
families who want the best for their children in our diverse region. This newer genera on, Millennials, do not necessarily follow the
same rites of passage, meline and philosophy as their parents: when to drive, move out of parents home, marriage, children, etc., so
I think it is important to consider the importance of this new genera‐
on and how it may affect tradi onal expecta ons. This demographic
is the future of our communi es, from future homeowners to business
and community leaders. I have read analysis on the personality types
of Millennials, but what I experience locally is a demographic of young,
smart and excited individuals that want to change the world. I have
no ced they are good at saving and have a long‐term plan for their lives
though many seem to be renters longer than other age groups; I think
this is to save money and not yet having the desire of home ownership
while they are trying to change the world through their careers. The
future is very bright for this genera on and I’m excited to witness the
transforma on. I do not think they are the largest segment of the real
estate market today, but if you asked me which is more important and
impac ul to our market: foreign investors or Millennials, I take Millen‐
nials every day. These young individuals will ul mately start families with interest in quality schools, communi es and homes.
Millennial Marital Status
Bay Area Commute Sta s cs Who bikes to work?
How long do our
commutes take?
Who works where
they live?
Who uses public
transit to commute? Increase in bike
commu ng from
2009 to 2013
Share of Santa Clara
County residents
who work there
(no. 1 in region) Average commute
in the Bay Area
Share of San Francis‐
cans who use public
transit (no. 1 in re‐
gion)
23%
88% 28:00
32%
Most predictable a.m. commutes
Most unpredictable a.m. commutes
From I‐680 to Highway 4
From I‐280 to Highway 101
From Highway 17 to 101
From Highway 4 to I‐680
From I‐580 to Highway 4
From Hwy.85 to I‐280/I‐680
Source: Metropolitan Transportation Commission; San Jose Mercury News The Bay Area is the most predictable commute in the na on!
Page 3
Volume 10, Issue 2
The Market’s Achilles Heel? It has been an exci ng me to live in the Silicon Valley. Over the past decade we have seen new technologies change the way we
(and the world) work and live. We have robots cleaning our floors, semi self‐driving cars and drones with high‐defini on cameras
capturing the most precarious angels. You may wake up to your friend’s current status updates on Facebook, or check the overnight
emails from your team overseas. Either way, we are in a dynamic environment that is ever‐changing, so it makes sense that real es‐
tate does the same. Whether up, down or flat, we should expect all of these can happen depending on the given environment. The
markets, both stocks and real estate alike, have been experiencing an amazing increase to values since the Great Recession through
increased confidence, job crea on and high affordability thanks to the Fed Reserve. But every market will have its ups and downs;
the trick is to prepare for both and minimize overall risk as best as possible. What will be the Achilles heel to our market: natural
disaster, terrorist a ack, massive job loss, affordability? I think the most likely culprit will be affordability and I would like to discuss
both sides of the argument.
You may say that the market is crazy and prices are unreasonable, but how is your monthly mortgage payment (affordability) com‐
pared to other market climates? You may be surprised to know that the current affordability in the valley is similar to August‐
September 2008, with the lowest affordability on record since 1991 being the year prior, 2007. Affordability is a calcula on of median
home price compared to median income by region at a given me, ac‐
cording to census data. Locally, our highest affordability was the begin‐
ning of 2009, which is consistent with the bo om prices of our markets
(Santa Clara, San Mateo, Alameda coun es). This informa on is valua‐
ble in understanding one of the key factors driving home prices. Over the
past several years it has been “affordable” — similar to the stock market,
if you got in at the right me you have experienced he y growth. It is
easy to see the past few years as unsustainable, but the key is that it
started from a very low point; in Santa Clara County we went from a me‐
dian price of $445,000 in February 2009, to $865,000 in August 2014.
That’s over 94% growth in less than six years. Going forward, the ques on is: At what rate that growth will con nue? Will the Achil‐
les heel be the breaking point of affording the higher price homes?
Affordability has been on a rapid decline over the past several years driven by con nued low interest rates and in spite of higher sala‐
ries and compensa on, which does not seem to keep up with home values. At what point will this affect the ability to purchase
homes? As many know, I have been watching it carefully since I believe it ul mately will affect purchasing power and prices. Howev‐
er, when affordability does become a variable in price
apprecia on, it is unclear how home prices will be
impacted and whether buying now will result in your
lowest monthly payment or taking the risk of wai ng
and be ng on a correc on will be best. It does not
appear that the Fed Fund interest rate will drama cal‐
ly change this year, so interest rates may con nue
si ng along the sea floor un l 2016. Home prices may
con nue to grow since the affordability doesn’t seem
to be a popular conversa on topic amongst my col‐
leagues and many buyers I see at open houses. If it
isn’t a concern for the majority of buyers, I think you’ll
see price growth through 2015 or un l which me
either interest rates or home values increase to a level
bringing affordability to an uncomfortable point.
Region Bo om Month
Bo om Price
Aug‐14 Median
% Change From Bo om
California Feb 2009 $245,230 $480,280 95.80%
Santa Clara Feb 2009 $445,000 $865,000 94.40%
San Mateo Jan 2009 $551,000 $1,000,000 81.50%
San Francisco Jan 2012 $561,270 $900,910 60.50%
Alameda Jan 2009 $346,236 $732,220 111.50%
Santa Cruz Feb 2009 $380,000 $657,600 73.10%
Sacramento Jan 2012 $162,290 $272,750 68.10%
Market Bo om to Now
Housing Affordability
Nicholas French, Broker Associate Page 4
Average Sale Price History ‐ 2006 to Current City Quarter 2006 2007 2008 2009 2010 2011 2012 2013 2014
Campbell Q1 $791,198 $833,203 $838,494 $639,970 $683,490 $712,287 $714,879 $871,425 $954,309
Campbell Q2 $844,987 $856,247 $784,261 $698,160 $701,404 $697,801 $732,801 $881,730 $1,046,250
Campbell Q3 $877,258 $914,508 $787,558 $707,113 $698,584 $695,185 $722,972 $872,120 $1,000,327
Campbell Q4 $820,621 $831,744 $748,148 $696,406 $708,750 $683,283 $801,260 $879,715 $998,610
Cuper no Q1 $1,185,615 $1,269,540 $1,228,546 $1,096,219 $1,116,294 $1,084,598 $1,177,715 $1,424,216 $1,558,285
Cuper no Q2 $1,155,259 $1,271,824 $1,248,285 $1,111,239 $1,109,567 $1,180,438 $1,266,434 $1,526,567 $1,844,903
Cuper no Q3 $1,143,979 $1,395,922 $1,192,671 $1,070,312 $1,105,559 $1,170,201 $1,237,210 $1,444,665 $1,782,324
Cuper no Q4 $1,178,278 $1,175,679 $1,083,321 $1,212,736 $1,095,078 $1,094,313 $1,311,446 $1,544,301 $1,672,887
Los Altos Q1 $1,758,591 $1,756,050 $2,072,789 $1,825,597 $1,651,155 $1,588,942 $2,002,293 $2,153,026 $2,596,566
Los Altos Q2 $1,738,769 $1,907,513 $1,990,993 $1,627,372 $1,643,322 $1,970,261 $1,951,454 $2,105,906 $2,529,651
Los Altos Q3 $1,812,820 $1,874,346 $2,017,517 $1,760,684 $1,799,416 $1,760,453 $2,081,604 $2,227,165 $2,523,185
Los Altos Q4 $1,827,018 $1,928,071 $1,738,923 $1,650,218 $1,718,203 $1,873,667 $1,938,127 $2,189,123 $2,813,971
Los Altos Hills Q1 $2,961,307 $2,964,485 $3,136,778 $3,162,500 $2,151,931 $3,065,574 $2,655,476 $2,548,583 $3,633,556
Los Altos Hills Q2 $2,768,938 $3,143,632 $2,975,806 $2,837,376 $2,722,588 $2,309,532 $2,949,025 $3,244,636 $4,018,727
Los Altos Hills Q3 $2,640,880 $2,808,572 $2,699,889 $2,212,227 $2,613,996 $2,627,542 $3,052,208 $3,229,450 $3,490,850
Los Altos Hills Q4 $2,383,729 $2,486,667 $1,781,667 $2,431,175 $2,489,875 $2,587,233 $2,611,586 $3,248,543 $3,746,245
Los Gatos Q1 $1,337,770 $1,396,680 $1,568,753 $1,309,063 $1,288,194 $1,146,052 $1,345,850 $1,399,474 $1,659,962
Los Gatos Q2 $1,437,264 $1,501,825 $1,605,442 $1,037,346 $1,324,864 $1,310,830 $1,336,826 $1,468,057 $1,692,904
Los Gatos Q3 $1,410,804 $1,456,744 $1,591,278 $1,159,351 $1,321,628 $1,273,465 $1,345,862 $1,470,147 $1,676,350
Los Gatos Q4 $1,361,441 $1,590,255 $1,612,637 $1,230,952 $1,213,055 $1,405,381 $1,452,599 $1,415,239 $1,648,701
Menlo Park Q1 $1,552,743 $1,508,487 $1,741,468 $918,845 $1,120,481 $1,248,585 $1,278,126 $1,405,147 $1,902,398
Menlo Park Q2 $1,471,815 $1,482,610 $1,779,068 $1,395,617 $1,327,585 $1,400,398 $1,509,465 $1,773,460 $2,219,297
Menlo Park Q3 $1,444,776 $1,352,795 $1,415,973 $1,295,481 $1,347,413 $1,183,366 $1,472,525 $1,664,037 $2,103,693
Menlo Park Q4 $1,434,715 $1,423,168 $1,141,740 $1,227,841 $1,290,710 $1,342,216 $1,362,481 $1,781,839 $1,972,696
Monte Sereno Q1 $1,735,690 $1,689,367 $1,925,278 $2,300,000 $3,222,778 $1,638,889 $1,358,167 $1,845,133 $4,576,042
Monte Sereno Q2 $2,114,583 $1,867,913 $2,028,056 $1,852,331 $2,303,611 $1,703,917 $2,210,278 $2,557,533 $2,556,131
Monte Sereno Q3 $2,259,222 $2,458,055 $2,937,833 $2,176,306 $1,729,167 $1,616,080 $1,741,833 $2,328,330 $2,193,722
Monte Sereno Q4 $1,708,833 $2,505,875 $2,515,833 $1,656,889 $2,225,806 $1,842,750 $2,287,000 $1,794,382 $2,514,304
Mountain View Q1 $927,329 $976,492 $1,077,130 $1,007,125 $909,257 $995,289 $986,878 $1,265,951 $1,455,536
Mountain View Q2 $1,010,929 $1,115,592 $1,050,665 $903,802 $965,358 $1,071,462 $1,110,136 $1,327,374 $1,423,503
Mountain View Q3 $1,016,498 $1,166,689 $1,070,380 $940,463 $963,091 $996,034 $1,161,289 $1,321,402 $1,527,560
Mountain View Q4 $988,538 $1,018,324 $1,061,152 $964,435 $963,732 $953,664 $1,211,425 $1,427,369 $1,593,858
Palo Alto Q1 $1,331,853 $1,670,919 $1,997,078 $1,416,743 $1,524,879 $1,711,614 $1,900,360 $2,423,523 $2,601,041
Palo Alto Q2 $1,367,841 $1,649,242 $1,831,182 $1,536,962 $1,699,756 $1,812,118 $1,984,392 $2,455,610 $2,735,100
Palo Alto Q3 $1,276,076 $1,819,697 $1,780,941 $1,448,072 $1,543,196 $1,548,423 $1,973,732 $2,146,295 $3,052,168
Palo Alto Q4 $1,322,308 $1,907,747 $1,425,203 $1,519,328 $1,410,401 $1,687,617 $2,140,631 $2,459,741 $2,557,438
Santa Clara Q1 $767,455 $769,095 $727,431 $568,270 $573,364 $590,717 $586,429 $721,662 $855,795
Santa Clara Q2 $756,769 $780,651 $728,613 $575,908 $610,004 $595,589 $658,793 $772,409 $908,392
Santa Clara Q3 $743,118 $799,844 $687,533 $586,553 $598,240 $602,192 $651,848 $793,875 $901,911
Santa Clara Q4 $718,018 $788,163 $599,252 $655,427 $604,167 $603,209 $700,478 $804,871 $898,367
Saratoga Q1 $1,848,975 $1,904,572 $1,678,179 $1,289,083 $1,689,487 $1,531,178 $1,599,581 $1,736,358 $1,968,691
Saratoga Q2 $1,668,854 $1,857,135 $1,807,198 $1,497,146 $1,593,660 $1,621,663 $1,842,729 $1,959,973 $2,321,564
Saratoga Q3 $1,744,046 $1,905,498 $1,880,639 $1,587,516 $1,781,376 $1,701,061 $1,623,903 $2,136,017 $2,315,981
Saratoga Q4 $1,698,504 $1,740,352 $1,793,858 $1,532,415 $1,373,673 $1,617,139 $1,885,242 $2,078,697 $2,284,863
Sunnyvale Q1 $854,754 $836,697 $856,288 $620,721 $729,354 $716,500 $690,391 $894,217 $1,105,307
Sunnyvale Q2 $890,566 $939,195 $907,392 $692,907 $820,988 $797,939 $819,240 $1,016,233 $1,199,762
Sunnyvale Q3 $866,558 $967,984 $844,670 $739,121 $770,465 $775,025 $887,302 $1,018,609 $1,161,403
Sunnyvale Q4 $832,289 $915,068 $695,484 $752,884 $671,802 $710,870 $914,383 $1,054,481 $1,203,246