Dramatic price drops bring San Jose homes within reach
— -- The housing market in San Jose has turned upside down.
Prices are plummeting, and sales are rising. Last year, the market headed in the opposite direction. Homes in San Jose had been so costly for so long that many families had been priced out of the market.
"When our median sales price was $850,000, two (income) working families could hardly afford to buy a home," says Quincy Virgilio, president of Santa Clara County Association of Realtors. In the past five years, only 16% of the local population could afford to buy a home in San Jose, he says.
In January 2008, the median home price was $664,444. It started to fall dramatically in October. And home sales hit bottom last year. Now that the median price is $415,000, homes seem to be a bargain, and nearly 50% of the local population can afford to buy a home.
"We're seeing a confluence of events," Virgilio says. "Interest rates are at a record low, and the affordability in San Jose is at a five-year high."
The main reason that home values have fallen steeply is foreclosure. Last year, the foreclosure rate in San Jose was 153% higher than it was in 2007, according to RealtyTrac.com. Last month, 67.5% of sales were related to bank-owned properties and short sales, Virgilio says.
"People were getting into homes they couldn't afford," says Anne Ramstetter Wenzel, principal economist at Econosystems. "The value of their home is now less than what they paid for and what the mortgage is. That encourages people to walk away."
That has created opportunities for first-time home buyers. Homes priced under $400,000, the low-end of the market, are getting multiple offers, Virgilio says.
Silicon Valley already had to deal with a painful shakeout that hit its high-tech industry in 2001. "We had a long, protracted adjustment, and jobs didn't resume growth until the end of 2005," Wenzel says. Now local businesses are strong, Wenzel says.
San Jose's housing market experts say that home sales will continue to rise.
"It's textbook economics," Wenzel says. "Lower prices are stimulating sales."
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