Where is this Inventory Starved Santa Clara County Market Heading?

Yes, inventory has continued to drop week by week since March 2009!  Today inventory is at a mere 2050 Single Family Homes with over 2800 consistently pending.  Higher pendings than actives you ask?  Yes, verifying that homes come on and fly right off the market is one week or less.  And not only is the speed much faster than normal, but we have only 58% of the inventory of the same time last year (2008) AND we have a 62% increase in sales compared to last year.  A huge swing of the pendulum.

I’m sure you’ve heard talk of banks holding back REOs…I’ve talked about it in many past posts even.  So the grand question is:

“Where is this market going?”

Let me explain 3 headwinds we are facing in Santa Clara county and throughout much of the country.

1. Option ARM resets peak early 2010

In 2007, subprime loans reset, causing the increase in supply of low-end homes (Under $500k in SCC).  This affect the 2008 market taking it to a stand still and then prices dropped enough that demand increased and the low-end of the market is again on fire and selling quickly.

Well coming spring 2010 and stretching several months, Option ARM loans (the ones where you can pay a minimum payment of 1%, but of course that means you are adding principal to your loan every month!) will hit a peak of resets.  Since values are significantly down, PLUS many of these borrowers have added to their principal, there WILL be an increase in foreclosures from this.

2.  Notice of Defaults and Notice of Trustee Sales are UP!

This means the pipeline of foreclosures is worse than ever!  Yes worse than what we are experiencing as a results of the Subprime peak in 2007.  This is a combination of subprime foreclosures continuing to increase as well as now Prime (“Good”) loans have many huge increases, such that they are surpassing subprime numbers!

These properties soon have to come out to the market, so there will be a wave of inventory, sometime…

3.  Unemployment UP!

We all know this statistic and are feeling it too.  Worse yet, we are probably about 6 months from the peak,  so there will be more people who just can not afford their homes anymore, which will add to point #2 even more!

So with all these factors coming together at once, the immediate future of real estate is definitely NOT price appreciation.  The flip side is buyers can count on more inventory coming sometime soon!