THE MUTIPLE OFFER PROBLEM
To Bid or Not to Bid?
In Silicon Valley we are now about 12 months into the latest outbreak of “Multiple Offer Syndrome”.
A large majority of homes are currently being listed on Wed, hold Open Houses Sat and Sun, schedule offers for mid week, and are sold to the best of multiple offers by Friday.
The reason for this is very simple.
There are too many Buyers chasing too few houses. This is a direct result of historically low interest rates which will not start rising till early 1014 at the soonest.
As any Economist will tell you, in a free market the solution to this is equally simple. The law of Supply and Demand will automatically correct the problem.
If there is a shortage of any product more of that product will be brought to market.
In this case where there is a shortage of Houses for Sale, prices will be driven up. As this happens more homeowners will decide to sell, and Builders will accelerate getting new homes into the market. Obviously these things do not happen quickly so you can be sure the current price escalation will continue for at least 12 months and then probably just slow down to the historical norm for Silicon Valley i.e. 5% per year.
If you are a Buyer who has several times lost out to higher bids you might wonder if it’s better to hold off till the market turns.
Consider the following:
Demand will not slow down for at least 12 months.
Each new sale sets a higher price for the next one in the same area.
In 12 months time it’s a near certainty that interest rates will be higher.
When things slow down and you decide to come back into the market you will be paying 12% to 15% more than today. (Based on price increases over the past 18 months in Silicon Valley.
In the meantime you are paying close to cost of a mortgage (which has major tax benefits) for rent which gives those same tax benefits to a Landlord.
Think carefully before holding off.