house prices

You often hear the phrase “seller’s market”. Most people would say that this means the sellers are exerting their desire for higher prices over the buyers, who wish to pay less. The use of this phrase does not help understand Belmont real estate.

The graph above of Belmont house sales prices shows a sharp increase at the beginning of 2000, corresponding to the dot com boom. Many Silicon Valley residents made significant money from dot com businesses and chose to spend the money on houses. The money supply available for buying homes rapidly increased and, in turn, increased buyer demand, creating a seller’s market. At the beginning of 2018 and even more so at the beginning of 2022, house prices spiked upward. These spikes were caused by home buyers changing when they wanted to buy rather than demand significantly changing. The expected increase in mortgage rates was an increased cost that buyers wanted to avoid. After the spike, prices fell, but the cost to buyers did not because interest rates rose. If “seller’s market” simply means prices are increasing, why not just say prices are increasing? If prices are rising because of external factors beyond the influence of buyers or sellers, why call it a seller’s market?

House prices in Belmont have been affected more by economic policy changes than by changes in the supply and demand for homes. The 2008 price drop was due to national economic changes making it harder to buy a house. The price increases in 2018 and 2022 were due to expected economic policy changes that increased home-buying expenses rather than by sellers forcing higher prices.

The cost of building a home has increased in Silicon Valley. It is no longer possible to build a large tract of homes and benefit from the cost benefits of mass production. The cost in both fees and time has also increased with increasing regulation. We’ve seen many construction projects make little progress for three years as the builder attempts to satisfy demands imposed by architectural review boards, planning commissions, and others. With little vacant land available, the cost of providing more services such as utilities and transportation, has become significantly higher. Increased housing supply is not going to reduce the cost of a home if it costs much more to build that new home. Buyer’s market vs. seller’s market discussions can easily veer away from understanding home prices in Silicon Valley.

House price changes are often highlighted by changes in the sales price to list price ratio.

When the sales price of Belmont houses exceeds the list price, house prices are quite likely to rise. Prices are likely to fall if the sales price falls below the list price. The years 2000, 2001, 2008, 2012, 2018, and 2022 show this for Belmont house prices.