Zillow predicts housing price contraction for 2025

[slo town]

I don't understand how people in your area of CA afford houses, period. I googled the average home price for Los Gatos, CA and it's over $2M. How do people do it?

Having been a Los Gatos resident for a significant portion of my life I think I can speak to this. The reason homes are so expensive in Los Gatos is because the it’s a beautiful place to live - and it’s in a region loaded with high paying jobs for those with the proper education or experience.

Los Gatos has gorgeous geography, great schools, virtually no crime, and a downtown so cute and vibrant it’ll take your breath away. There are Michelin star rated restaurants in Los Gatos! While President, Bill Clinton was in town and ate at the same restaurant Sue and I used to dine at 2 or 3 times a month.

Los Gatos has always been expensive because it’s one of the nicest areas in the entire COUNTRY. This is one thing @JeffKeryk and I are in total agreement.

Sue and I bought our first home in Los Gatos for just $179,500. At the time that price was absolutely eye watering, requiring us to eat rice and beans for a couple of years afterwards. That house is now worth well over $2.5M. At least…

My first job in the computer business was back in 1978 and paid what I thought was a good starting salary, but by the time I retired in 2005 my salary was over 15 times that - not counting stock options!

The key to prospering in Los Gatos (or any of the nice areas in the SF Bay Area) is being fortunate enough to have gotten into the game early - both career and home buying. For a newcomer starting out, taking up residence in Los Gatos would be impossible.

Scott

 

[BMWTurboDzl]

I can't say $334k is typical but I can say I have more than that in household income by quite a bit. Just as a reference and a joke if you are in Palo Alto the qualifying line of affordable housing program for a family of 4 is $200k in total family income.

Most of the people with 2M home purchase either roll in their gain from previous home (they are not first time buyer and had some home appreciation from a prior cheaper smaller home or condo, for example), or they sold other investment to get a down payment for that 2M home. Yes, Bay Area is not an average income US metro. It is near the top of US if not already the top. You can't use average US household income to value NYC real estate price for the same reason. There are a lot of choices for people who can't afford the perfect home: you can get a condo or townhouse in good school district, or commute from far away, or just don't go to a good school district and send the kids to a private school (private schools here aren't automatically better than public schools mind you), or just rent for a few years during the school district need.

Another couple of things are: we have prop 13 so it limits property tax increase over time regardless of home appreciation. So this is why many old people refuse to sell and leave to somewhere just slightly cheaper, because they would lose that property tax discount. There are also cheaper places to live if you don't mind commuting, like Livermore and Gilroy, but you are paying for it in commute stress.

$400k for down pay is really not a lot if you work for a company that has a lot of stock, and people switch jobs a lot for these up side. Managing your own investment in the stock market is also as important as your work performance and spending habits.

AMI lookup tools used by the GSEs.
https://sf.freddiemac.com/working-w...a-median-income-and-property-eligibility-tool

https://ami-lookup-tool.fanniemae.c...840_Um0LT-SaoNvQ2tbn4OOzQ4NqPkIOqUCkDTXGuMCxw

 

[CKN]

Maybe-but the adjustment isn't going to be from "unaffordable to "affordable". JMHO.

 

[PandaBear]

Thank you for your answer, its what I expected. Please don't take this negatively, but its a beggar thy neighbor area for the top 5% - those with roll over or bring in equity from elsewhere, very high paying jobs and stock options that paid out. Its not really even applicable to any real estate discussion. Its like real estate in Monaco, or the Hamptons.

Interestingly you brought up NYC - because if you do the math the NYC condo market has not even kept up with inflation over the last 20 years. NYC is done long term - the reason being the banks have been leaving - for longer than 20 years actually. It started when BoA moved their corporate headquarters to Charlotte and soon became the largest consumer bank, and ramped up during the pandemic when the hedge funds all moved to TX and FL (no state income tax). Even the stock market people figured out they don't need to be in NYC to trade stocks.

NYC is pretty much not an owner occupied city but rather an REIT holding city. Many packaged the holding of commercial and residential RE into REIT and would rather keep them vacant than renting out to drop the valuation (then they have to mark down in the book). I don't think the Bay Area is like that yet but I think unless you bought before 2015 it is really difficult to afford from no other equity rolling in today.

If you just want to live here however, renting is IMO the way to go (and I'm speaking as a landlord here). I have been telling my parents to just sell their rental properties for years and just buy S&P500 or even just T Bill after 2024, but they just feel comfortable holding it and get below T Bill return if factoring in their free labor is worth a paycheck at least.

This IMO is the main reason why people move out, not politics.

 

[PandaBear]

At $2M you are including condos. I live in the poor part of LG; there are probably no $2M houses on my block. The rich people live up the hill; I am not allowed there.

Full disclosure, I did not pay anywhere near that much back in '94 I think. Sometimes you get lucky, as they say. I bought the worst house in LG. It's a nice place to live. @slo town was brought up here; he has many fond memories including the dairy business with cows down the street.

2 key reasons Los Gatos is high; we are located at the edge of Silicon Valley at the edge of the Santa Cruz Mountains. A refuge of the snarling Valley that chews up people and spits out money. 2nd, the schools. The school down the street is rated, "A California Distinguished School". That's off the charts.

Now if you want to talk expensive, per square foot, you gotta go to Palo Alto. A friend bought a broken down place there back in the early 2000's. Her neighbors were "2 Steves", Steve Young and Steve Jobs.

One one hand it is nice to have the equity. On the other hand my neighbors almost all say their children will never be able to live here.

To be fair, LG was not the same as back in 94, just like Mountain View used to be a ghetto before Google move in and they tore down and rebuild the downtown.

94.... My parents bought their 4-plex for 500k and has been owner occupied in 1 unit till now still, it is probably worth 3M by now. I remember people considered Camry a "you've entered upper middle class" car back then, equivalent to today's Quad Cab pickup costing $60k. Money isn't the same money back then and interest rate was way higher.

A friend's family bought a house in Saratoga for $100k back then and it is now probably 4M by now. Demographic has changed.

 

[FordBroncoVWJeta]

I bought my first home last year for 250K. On Zillow its estimated at 290K, Redfin at 380K. When I bought it, I thought $250K was a little high... That new estimates are ridiculous. There has to be a real price correction at some point.

 

[JeffKeryk]

To be fair, LG was not the same as back in 94, just like Mountain View used to be a ghetto before Google move in and they tore down and rebuild the downtown.

94.... My parents bought their 4-plex for 500k and has been owner occupied in 1 unit till now still, it is probably worth 3M by now. I remember people considered Camry a "you've entered upper middle class" car back then, equivalent to today's Quad Cab pickup costing $60k. Money isn't the same money back then and interest rate was way higher.

A friend's family bought a house in Saratoga for $100k back then and it is now probably 4M by now. Demographic has changed.

Panda, there were no $100K homes in LG or Saratoga in '94, not even close. $400K - $500K was starting price for a single family home.
$100K was East Palo Alto... I sold my small Cambrian home for almost $200K to get into LG. This was the bottom of the market...

Regardless, prices are crazy. I have had a hand in 3 purchases in the past 1.5 years.

 

[PandaBear]

Panda, there were no $100K homes in LG or Saratoga in '94, not even close. $400K - $500K was starting price for a single family home.
$100K was East Palo Alto... I sold my small Cambrian home for almost $200K to get into LG. This was the bottom of the market...

Regardless, prices are crazy. I have had a hand in 3 purchases in the past 1.5 years.

Sorry, was back in 80s.

 

[JeffKeryk]

Sorry, was back in 80s.

I got out of Peterson HS in Sunnyvale in 1971. I could have bought a small flat top house for like $3500, probably less.
Sunnyvale is off the freakin' charts now, thanks to the Spaceship. Sheesh.

 

[slo town]

Panda, there were no $100K homes in LG or Saratoga in '94, not even close. $400K - $500K was starting price for a single family home.
$100K was East Palo Alto... I sold my small Cambrian home for almost $200K to get into LG. This was the bottom of the market...

Regardless, prices are crazy. I have had a hand in 3 purchases in the past 1.5 years.

Agree. Last time you could buy a $100K home in Saratoga or Los Gatos would probably be back to the very early ‘70s.

People talk about today’s housing bubble… The housing bubble first started when the dollar was taken off the gold standard.

Scott

 

[slo town]

I got out of Peterson HS in Sunnyvale in 1971. I could have bought a small flat top house for like $3500, probably less.
Sunnyvale is off the freakin' charts now, thanks to the Spaceship. Sheesh.

For those who are familiar with the area, Sunnyvale is no Los Gatos. In fact, I’d take Los Gatos any day over even more pricey Saratoga.

Sue and I left Los Gatos back in 2000 and ended up in a cute little unincorporated town in California’s Central Coast called Templeton. IMO, home affordability is even worse here in Templeton than Los Gatos. Los Gatos is chock full of well paying jobs. Templeton is a job desert, unless you like picking wine grapes or like working at a hotel front desk.

Sue and I had our reasons to leave Los Gatos, but it’s a deliberate decision I’ll always have a degree of regret. Although VERY different we love Templeton just as much. No way will we move from here make the same mistake twice.

Scott

 

[SC Maintenance]

At $2M you are including condos. I live in the poor part of LG; there are probably no $2M houses on my block. The rich people live up the hill; I am not allowed there.

Full disclosure, I did not pay anywhere near that much back in '94 I think. Sometimes you get lucky, as they say. I bought the worst house in LG. It's a nice place to live. @slo town was brought up here; he has many fond memories including the dairy business with cows down the street.

2 key reasons Los Gatos is high; we are located at the edge of Silicon Valley at the edge of the Santa Cruz Mountains. A refuge of the snarling Valley that chews up people and spits out money. 2nd, the schools. The school down the street is rated, "A California Distinguished School". That's off the charts.

Now if you want to talk expensive, per square foot, you gotta go to Palo Alto. A friend bought a broken down place there back in the early 2000's. Her neighbors were "2 Steves", Steve Young and Steve Jobs.

One one hand it is nice to have the equity. On the other hand my neighbors almost all say their children will never be able to live here.

I am sure your right, but there are those places everywhere. Sullivan's island here, Buckhead in Atlanta, Southpark in Charlotte. Those that can afford it live there. The rest commute.

A mentor of mine lived in Southpark. He built and sold a couple companies. He was actually my customer. Harvard MBA, had no reason to befriend me but he did. Unfortunately cancer took him far too early.

 

[JeffKeryk]

I am sure your right, but there are those places everywhere. Sullivan's island here, Buckhead in Atlanta, Southpark in Charlotte. Those that can afford it live there. The rest commute.

A mentor of mine lived in Southpark. He built and sold a couple companies. He was actually my customer. Harvard MBA, had no reason to befriend me but he did. Unfortunately cancer took him far too early.

I live in a 3/2 1,200 SQ ft home, built in 1962. Smaller 2 car garage, but there is a 10x20 shed in the back for stuff. Of course the solar panels are a big plus... Ha!

I love it here.

 

[SC Maintenance]

OK, so using the affordability tools shared by @BMWTurboDzl (great tool, thanks!) and picking a current home for sale in Las Gatos - which appears to be a little more than a mile from downtown for $1.8M, I get this. So while the median income is high, around 2.2x the national average, it nowhere near explains the housing prices that are 4X the national average.

So the "great jobs" still don't explain the housing prices. I guess just lots of people want to live there.

 

[Dave Hess]

Please elaborate. I'm mid-50's and love to travel. Recently returned from a few weeks in Italy and a few days in Palma de Mallorca. Love the many Florida airports (NOT MIAMI!!). SO much easier than JFK. LGA, or Newark. We've been to FL 8 times for home searches. Spent the first 6-8 months figuring out what we didn't want! That helped a lot. It may be that FL is in "shambles," but what we've seen and experienced wouldn't be a term we'd use.

Quite possibly coming from a state (NY) so much farther from lucidity, we are blinded to the scourge you recognize or experience daily. Appreciate the reply.

The Carolinas away from the ocean is a better option.

Sure, keep vacationing in Florida but don’t buy anything here.

 

[JeffKeryk]

OK, so using the affordability tools shared by @BMWTurboDzl (great tool, thanks!) and picking a current home for sale in Las Gatos - which appears to be a little more than a mile from downtown for $1.8M, I get this. So while the median income is high, around 2.2x the national average, it nowhere near explains the housing prices that are 4X the national average.

So the "great jobs" still don't explain the housing prices. I guess just lots of people want to live there.



View attachment 283201

That's a 2/1 916 SQ ft build in 1928. A cottage. Nice end of town, though.

 

[SC Maintenance]

That's a 2/1 916 SQ ft build in 1928. A cottage. Nice end of town, though.

I just picked it to get the overall numbers. It was in my $2M criteria and appeared to be close to the actual towncenter.

Personally I would buy this one if I moved there. No neighbours

 

[JeffKeryk]

I just picked it to get the overall numbers. It was in my $2M criteria and appeared to be close to the actual towncenter.

Personally I would buy this one if I moved there. No neighbours

View attachment 283205

Yeah, that's off Kennedy Road. Another place I'm not allowed. That's @slo town area, I believe. I will tell you this, the people I know who live in 95030 are down to earth, decent people. I'm 95032, in stowage... On the Campbell-Saratoga border.

 

[02SE]

I just checked, our house continues to increase in value. Approx. 1.5% each month this year. That's great if we wanted to sell, but at this point it just means the property taxes, and home insurance will be higher.

 

[slo town]

Yeah, that's off Kennedy Road. Another place I'm not allowed. That's @slo town area, I believe. I will tell you this, the people I know who live in 95030 are down to earth, decent people. I'm 95032, in stowage... On the Campbell-Saratoga border.

Yep, that's somewhat near my old stomping grounds, but understand it was a very different place back in the day. There was very little up there in those hills back then, but in my young buck days it was a great place to park with my girlfriends. I got a speeding ticket on my BICYCLE near there on Loma Alta. I was caught by radar doing 37 in a 25 mph zone on a descent into town on my way to work one morning.

Scott