House of Questions

"When is the 'sales bubble' tied to Eichler real estate in Silicon Valley going to burst?"
Fridays On the Homefront
Silicon Valley Eichlers (like this one) are looking mighty appealing to buyers these days—but how can those skyrocketing prices continue? Is that glistening bubble about to burst? Photo: courtesy Boyenga Team
Fridays On the Homefront
Realtors Kevin Swartz of the Erdal Team (left) and Eric Boyenga of the Boyenga Team (right).

2015 has been a good year to sell an Eichler anywhere in California, and in particular on the Peninsula and in the South Bay, where prices are remarkably strong and many sellers get to choose from multiple offers.

But can it last forever? Or are we watching a shiny, glistening bubble before it bursts?

We asked these questions of two South Bay real estate agents with lots of experience with Eichlers, Kevin Swartz of the Erdal Team and Eric Boyenga of the Boyenga Team. Their answers are illuminating for anyone considering buying or selling such a home in 2016.

Where does the inventory of available Eichlers stand right now in the valley?

Boyenga: It’s extremely low, and it continues to be low. Of the Eichlers we sell, most of them we have to wait until someone passes on or someone is relocating. It’s very rare people just sell them just to sell them.

Swartz: Something that, as real estate agents, we look at to kind of tell us if it’s a seller’s market or a buyer’s market is the ‘months of inventory.’ The months of inventory, if it’s in the 4 to 7 range, it’s kind of a balanced market. Anything from three below would be a seller’s market, and that’s the months that it takes in order for [all available] properties to be sold based on the rate at which buyers are purchasing homes and they’re getting into contract. And right now, it’s at about 1.3 in Santa Clara County for the months of inventory. Last year, it was about 1.9, the year before 2.7. So I think we'’e going to start getting a little bit more balance, and you’ll see that ‘months supply of inventory’ go up a little bit…Right now, if nothing else came on the market, it would take 1.3 months for everything to be sold.

Are we experiencing a ‘bubble’ in the market for Eichlers in the Silicon Valley?

Boyenga: There are always ebbs and flows in the real estate market. The Eichler market is actually a much more stable marketplace because of the limited inventory. I don’t see any weakness in Eichlers.

Swartz: I don't see a bubble…Certainly, inventory levels are still very low, but the buyer demand as of recently, the last couple months, has diminished. And I believe part of that is, one, the price point has gotten away from what a lot of buyers can afford. You know, over the last three years we’ve seen 15, 20 percent appreciation year over year, when you look at the average sales prices in different cities. The buyers out there that are purchasing these homes, they’re not making that much more money. So, the price point got away from some buyers...We can’t see another 15 percent rise in price. It’s going to be much, much more sustainable growth, probably in the five percent range next year.

With prices so high, are we running out of people who can afford Eichlers?

Swartz: I don’t see that we’re running out of people that can afford [Eichlers], but certainly for each home, there may be only one buyer, rather than six or seven that can afford it at the price they were going for last year. So it’s something where sellers have to be more patient. You don’t have to sell in the first week; it might take three weeks to find that ‘right’ buyer. And certainly [Eichler] buyers are having to kind of reconsider where they’re looking. I’ve seen kind of the ‘sweet spot’ for where the most buyer demand is, and that’s in the price point probably between a million-two and a million-five ($1.2 and $1.5 million). And we’ve seen that price point kind of move from city to city over the years.  In 2012, you could buy a single-family home in Mountain View for that price, and then in Sunnyvale in 2013, and then even last year it was possible in Sunnyvale. And now, you know, in Willow Glen [San Jose], the Eichlers are all selling for a million-two to a million-five. So buyers who really wanted an Eichler in Sunnyvale, they can’t afford it anymore...They have to reevaluate the location, and a lot of them are moving to Willow Glen. And so last year, the regular, nicely updated Willow Glen Eichlers were selling for maybe [$1.25 million], and this year they’re selling for a million-five [$1.5 million]. And that’s pretty much because the buyers, they would have bought in Sunnyvale but they can’t. They can't buy an Eichler for a million-five in Sunnyvale, so they go to the next best thing...The people that are buying Willow Glen Eichlers, they’re doing it because they want an Eichler. [Maybe] the schools aren’t as in demand, the location isn’t as great...