May 10, 2005

Only about 60 properties make up Campbell’s housing inventory

Sellers’ market creates tough competition for buyers

By Sheila Sanchez
Staff Writer

Campbell realtor Kelly Weimer was looking for a home for a family with three children in the Orchard City a couple of months ago.

This house on Westmont Avenue was expanded from 900 square feet to 2,330 sq. ft. and is listed for $1,099,950.

She found the perfect house for them near Westmont High School.

Her strategy was to make an offer on the home before it was shown to the many buyers out there looking for properties as interest rates are still relatively low.

She spoke to the sellers’ agent and spared her customers the tough competition created by multiple bidding that occurs bringing prices high.

“It was a great, clean offer and they accepted it,” she said. “It was great for the buyer.”

Usually a 6 percent commission of a home’s purchase price—in this particular case about $800,000—is split between selling and buying agents and their offices. The home was sold in a matter of days.

Small inventory
Wondering why Campbell home prices are going through the roof?

The answer, according to experts, may be the small inventory of homes available in the city—about 60—and more buyers than sellers canvassing neighborhoods searching for the perfect dwelling.

That combination, fueled by still relatively low home loan interest rates, makes for a field day for local real estate agents, mortgage lenders and homeowners wanting to make a profit on their properties to buy cheaper ones outside the Orchard City.

“It’s all demand,” said Mary Kirby, a real estate agent for the Saratoga-based Alain Pinel Realtors. Leslie Appleton-Young, chief economist for the California Association of Realtors (CAR), agreed. She said home values have been rising for the past two years because demand has exceeded supply.

Kelly Weimer, a realtor with Windermere Silicon Valley Properties, said the shortage of listings and the emphasis buyers place on location is also driving prices up. “There’s more buyers out there than there are houses,” she said.

Local realtors say the average single-family home price in Campbell is $675,000 and the average condominium price in Campbell is $480,000.

Campbell amenities
Derek Deaton, a realtor who’s worked in Campbell for more than 20 years, said people want to buy and live in Campbell because of its proximity to the Monte-Sereno/Los Gatos border. In addition, Campbell has a family-friendly environment, offers good schools and provides buyers more options than astronomically-expensive homes in areas like Los Gatos, Saratoga and Monte Sereno.

Deaton, who’s specialized in Campbell home sales for the past decade, has sold about 250 properties in the Orchard City during that time. He said with light rail coming into the city more people will want to buy homes here.

“Buyers get more home for the money in Campbell than they do in those other surrounding expensive areas,” he said.

South Campbell is the most rapidly changing neighborhood area on the west side of Silicon Valley with new homes replacing older homes as the large lots are now in the highest demand, Deaton added.

Appleton-Young also noted a still friendly mortgage rate environment fuels home sales, although it’s begun to increase. A 30-year mortgage rate climbed just above 6 percent last month, for the first time since last July. “They’ve been at historic lows for the last couple of years and that’s made a huge difference,” she said.

She indicated flexible mortgage instruments in terms of interest only loans and the “6 percent for three years” or “6 percent for five years” loans adjusting later have given buyers many below-market rate financing opportunities.

Interest rates up or down?
The Federal Reserve, however, is now warning of a looming inflation, because of the persistent and risky high prices and credit made available to borrowers.

“There’s a lot of buyers out there because the rates are so low,” Weimer agreed.

She said in the last couple of weeks, buyers, tired of having their offers rejected and out-bid by competitors with more money, have began to wait, however, to see if the prices will go down.

Mike Busch, a real estate agent with Re/Max, said once the demand for homes neutralizes, supply will equal demand and prices may start to fall next year with multiple offers on homes decreasing.

He also noted last year was a sellers’ market and he predicted that it would continue that way until December.

“Because of the low inventory right now people are battling for homes,” he said.

Deaton said the multiple offers on homes are directly related to pricing, with under-priced homes receiving more than a dozen bids because the sellers sometimes don’t know the real value of their properties. “Quite often these homes are sold for less than what they could have achieved had they been priced correctly,” Deaton said. “It’s a matter of understanding values.”

“The demand in Campbell doesn’t drive buyers the way that Cupertino or Saratoga schools drive some buyers, but overall it’s a matter of money and what they can afford and what they get for their money,” he added.

Appleton-Young said the housing industry in California is weighted heavily toward trade-up buyers because first time buyers have a difficult time getting into the market and are making the state’s Central Valley grow rapidly. It’s also the reason other states in the Southwest, such as Arizona and Nevada are seeing cities like Tucson, Phoenix, Reno and Las Vegas grow strongly.

Buyers, sellers, lenders and real estate agents should enjoy the boom while it lasts.

The National Association of Realtors is predicting that interest rates are likely to be 11 percent or above by 2007. It’s also anticipating real estate sales will level off because of the increase in the rates.

What about the bubble theory?
Appleton-Young and Deaton believe as a large majority of real estate experts that the demand for housing will continue in the future.

“I have no one calling me telling to tell me they’ve lost their job and they have to sell their home like I experienced so much in 1990 through 1994. But it would not surprise me to see the market begin to run flat, healthy and normal as we have not seen that kind of market in a long time,” said Deaton.

Appleton-Young said for the bubble to burst one must consider cyclical economic factors from a major economic calamity such as recession. That’s the type of scenario that would cause high unemployment rates and population exodus.

“You would need a big increase in supply and that only would come if people move or if mortgage rates get so high that people wouldn’t be able to afford the financing or if so many investors are in the market that they just sell quickly and make a profit,” she said.

But she warned that, “we’re definitely seeing a slowing in the rate of appreciation. CAR’s forecast for this year is for soft landing in 2005 and a drop in sales of 2.5 percent and appreciation from 21 percent last year in the statewide median home price down to 15 percent this year.

For more information on real estate log onto www.car.org.