Monday, April 9, 2007
More active listings coming on the market and less deals going in to escrow. Divergent paths between the two stats. This is true in both the single family market and the condo/townhouse market in Santa Clara County. Yet, this is opposite of what is happening in Cupertino, Saratoga, Los Gatos, Palo Alto and Los Altos. We have micro-markets and it is very evident.
The general feeling is that cap rates are too low. Compared to what? If you compare it to rates 5 years ago, yes. That is a poor comparison though. Cap rates need to be compared to the cost of money and what interest rates will do in the near future. Also, new and significant pressure is coming from the baby boomers moving equity into stable commercial investments. Down payments are higher and not just because lenders are requiring it. More so due to the fact that very conservative buyers are buying into commercial property and being very risk adverse. All cash purchases abound. Leverage at a later stage in life is not so important. Cash flow, security, stability, asset protection rule the deals. Cap rates will continue to compress in the near term - think 10 to 20 years - just in time for the Gen Xers to step in.