In our ongoing look at the Bay Area’s Eichler inventory shortage, we’re focusing on the Peninsula this time, including Palo Alto and San Mateo County. The shortage here is just as severe as it is in Sunnyvale and other parts of the South Bay. And prices have gone up for the last three years, as this trend chart from Mark Easterday of Eichler Homes Realty shows. The main issues on the Peninsula: Too many qualified buyers and a static housing stock.
“Right now there’s nothing out there. It’s zero at the moment as far as Eichlers go,” said Glenn Sennett, an Eichler Specialist with Coldwell Banker, who operates in San Mateo County. “The interest rates are hovering around 3 to 3.5 percent for a 30-year fixed mortgage, and you can get a 15 year fixed for 2.75,” Sennett said and, “there are lots of qualified buyers looking in San Mateo county compared to other areas.”
Sennett described his average buyer as “usually highly educated, they have two kids, both spouses work, they’re usually high tech or biotech. They want the good schools and they want the location.” That means buyers qualify for loans easily. “Which in turn helps raise the values that much quicker, because there’s so many more buyers who can get these ‘jumbo’ loans.”
Meanwhile, Sennett pointed out that there’s really no more space in the Peninsula to carry out large-scale development, so there’s limited stock to meet the increased demand. “We don’t live in an area where they’re building homes. You’re going to live in a home that was built 40 or 50 years ago.”
The uptick in demand means Eichlers in the San Mateo Highlands are “somewhere between $1.1 million and 1.2,” Sennett said. “But they sell for more, and that’s just your average 4-bed 2-bath.”
Easterday’s data showed Eichlers in the Highlands averaging $1.08 million in 2012, up from a low of $911,000 in 2010. In fact, the only area not showing a dramatic rise in prices was Foster City, which Easterday attributed to a small number of Eichlers to start with. “I think it’s a sample size problem. I don’t want to read too much into the trend. The number going from 831 to 812, it’s almost a rounding error.”
Meanwhile, in Palo Alto, the same forces are at work, but Intero Real Estate’s Eric Boyenga points out that there’s also a growing foreign market. “What’s happening now is that we’re getting a huge amount of demand from Asia that we’ve never seen before. That makes up 60 to 70 percent of the demand,” he says. In addition, “There’s this huge amount of pent-up demand. People have been waiting on the sidelines for five years,” and now that the economy is improving, they’re ready to buy.
“In Palo Alto you’ll see one priced for $1.2 million and it will go for 1.6 million,” Boyenga says. “Here in the Silicon Valley we’re going through something that’s crazier than 06, crazier than 2000. There’s huge demand for Eichlers too, but there’s huge demand for anything.”
Check back later this week for insight into the Eichler shortage in Marin and the East Bay.