To anticipate the future, we must understand the current market dynamics and past statistics. Gilroy has had historic growth over the last few years, especially after covid. Right Before covid, the average price of a home was $860K; now it’s $1,137,000. This means if you’re a homeowner, your net worth just grew by 24% over the last three years.
Before we take a look at what the rest of the year may look like let’s quickly examine the most recent sales date from last month. The month of June was another strong month for our Gilroy market. As I mentioned earlier, the average price of a single-family home was $1,137,000, whereas the average price of condos and townhomes was $790,000. Compared to last year, the average price of a single-family home is only down by 2.4% on the other hand, condominium prices are up 4%.
On average, it took 21 days on the market for a home to sell, and the supply of inventory stands at just one month… which is remarkably low. It goes to show that the market is heavily favoring sellers despite high-interest rates. The number of transactions has picked up as well, with 47 sales occurring in Gilroy last month which is 12 more sales than the previous month. All in all, what this means is that the market is again favoring the sellers.
Now, let’s look at how the market is likely to behave over the remainder of the year. There are a number of reasons why I believe the market will continue to favor the sellers for the rest of the year, with a few key exceptions.
1. Not enough homes for sale: A healthy housing inventory typically ranges from four to six months. If the inventory exceeds six months, it indicates more homes for sale than buyers, resulting in a buyers' market. Conversely, if the inventory falls below four months, it signifies higher demand and more active buyers. Currently, Gilroy's inventory level stands at only one month, indicating a scarcity of homes for sale and increased buyer demand.
2. Stabilizing mortgage rates - The market is realizing the fact that the mortgage rates will remain high for a while and may actually rise further in the near future before coming back down. So this new reality is finally settling in, and at the same time, buyers are exploring other means like adjustable rate mortgages as an alternative to the 30-year fixed-rate mortgages because ARM loans have lower introductory fixed rates for a specific period, such as five years or seven years before the rates begin to adjust on an annual basis.
3. Migration - Many higher-income earners from major cities such as San Jose and other areas further north are purchasing homes in Gilroy. They view Gilroy as relatively more affordable and have the means to handle higher monthly mortgage costs or make substantial down payments. Those who sell their homes in San Jose can easily afford to purchase a home in Gilroy due to the price difference.
4. Strong economy - Despite high inflation and rising cost of living, the US GDP experienced a growth rate of 2.0% in Q1 of 2023, and this trend is expected to continue for the rest of the year. The employment sector has done exceptionally well, the California unemployment rate currently sits at 4.5%, but if you look at the unemployment rate for tech workers since Silicon Valley heavily influences our area, the unemployment rate for the technology sector is as low as 2.0%, well below the overall unemployment rate. The Tech stocks are rebounding, which boosts people’s stock portfolios; they can utilize the gains for down payments or reserves.
And for these reasons, I believe we are not going to see a housing crash anytime soon. The demand for real estate remains strong, there is a lack of enough homes, and the overall economy is performing well despite high-interest rates.
Now, if suddenly we see a shift in macroeconomics, like the war in Ukraine getting out of hand, China decides to invade Taiwan, another banking crisis, or inflation starts to rise again, then there’s a possibility the real estate market may be impacted but the real estate sector itself remains strong.
