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Should I buy now or wait?

The one question I constantly get from all my friends, family and prospective real estate customers is whether it is still a good time to buy a home in San Jose, or if they should wait for a downturn.

With median home prices at $950,000 in San Jose overall and over $1.2 Million in neighborhoods like Willow Glen, this is a question that impacts the pocket book directly. It would take the foresight of Nostradamus to accurately predict the future, but if we analyze the historical real estate data for the past dozen years, it does reveal some interesting trends.  

Think well beyond the price tag

As a real estate professional, my guidance to all my prospects and customers is to consider some of the following when thinking of buying a single family home whether for living in or for investment purposes. While the price is obviously important, it should not be the only variable you consider when making the buying decision.

  • Timeframe – Real estate is a long term play i.e. think in the 10-year horizon and you will likely not be disappointed
  • Location – Geography is critical for long term gains i.e. find the best possible location you can afford and you will be appropriately rewarded
  • Macro trends –Do not ignore the macro-economic variables that might impact the appreciation for a given property i.e. proximity to major employers (e.g. the new Apple campus in Cupertino, located a 15-min drive away), presence of anchor entities (hospitals, universities etc), public policy emanating from local City Halls (e.g. San Jose rolling out the welcome mat for Google), public infrastructure projects (e.g. BART coming to San Jose) etc. 

What is the data telling us?

See the graph below that shows San Jose Median Home prices from Jan 2010 to Jan 2019. Just for reference, the great recession started in 2008, with the bankruptcy of Lehman Brothers happening on Sept 15, 2008 and the Dow subsequently losing almost 1,900 points during the week of Oct 6-10.

Source: Zillow Home Values Database

  • In the 10-year period, from Jan 2010 to Jan 2019, the median price of a single family home in San Jose, CA has increased by a whopping 100%(i.e. an annualized average of 10%, almost 5 times inflation average for that period) 
  • In the Willow Glen neighborhood, prices have increased by 72%during that same time frame, slightly less than San Jose overall but impressive nonetheless
  • The stock market has generally returned a 10% annualized average returnto investors on a long term basis. This is from analysis done by NerdWallet, you can view the details here.

Conclusion

If you are looking for a long term play, San Jose remains a very vibrant destination for buying a home. Here is why:

  • The macro-economic trends are hugely in your favor. With Google poised to bringing over 25,000 jobs to the downtown / Diridon area, the impact on residential home prices is bound to be positive
  • The electrification of Caltrain is slated to be completely by 2022, and BART is slated to connect San Jose to San Francisco by 2026/27. These projects will open up huge new possibilities for employees who otherwise are saddled by 2-hour long commutes and therefore cannot even think of living some distance away from their jobs. All that changes if San Francisco 4th& King station becomes a 45-minute train ride from San Jose Diridon
  • The overall Bay Area economy continues to hum and the tech industry is poised for a whole new slate of IPOs hitting the market. If the jobs situation stays strong, so does the housing market
  • At a tactical level, the US Federal Reserve has clearly signaled that they are not going to be raising interest rates any time soon, at least through the end of calendar 2019. That provides a lot of stability for home buyers thinking about a Million Dollar plus purchase.

Next Steps

Pls contact me at sheila@rwcastlerock.com and I will help you understand the dynamics of what makes San Jose (in general) and Willow Glen (in particular) a great place to invest.

Thanks for your time in reading this blog.

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