Does Market Recovery Got Legs? We're About to Find Out

© John L. Hart FLP, all rights reserved.

One of my favorite comic strips ever ran in the 1960s, when Johnny Hart’s B.C. character discovered that “Clams got legs!”

I thought about that this morning because it dawned on me that we’re about to find out whether the Bay Area real-estate recovery has “got legs.” In fact, the next three months will be critical to answering that question. Here’s why:

Prices have risen over the past year in most San Jose area neighborhoods by anywhere from 12.7 percent in Almaden Valley to an astounding 51 percent in swanky Palo Alto.

In most cases, however, the majority of that price run-up is due to decades-low inventory, with increased demand as a secondary factor. That makes if almost impossible to judge just how deep is the buyer pool.

The strongest recoveries – the ones that “got legs” – are those driven mainly by demand.

The reason all that’s about to come to the head is what I call the annual “Super Bowl Bump” in inventory. Most springs, that rise in the number of homes for sale actually attracts even more new buyers than sellers into the market, leading to a price run-up that generally lasts at least through the July 4 holiday.

But with inventory this low, there’s certainly no guarantee that rising prices will survive a major bump in the number of homes for sale.

For instance, 22 homes are currently listed for sale in Blossom Valley’s red hot 95123 zip code. A more typical number might be 100 – or more during the spring selling season. Blossom Valley prices were up by 17 percent year-over-year in January.

The big question is whether those prices can hold up into May and June, when it’s possible that will be five times as many homes listed for sale.

If they do, we’ll know the market’s got legs.

If not, we could see a very rare – and disconcerting – price drop during what is normally real-estate hottest time of year.

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