real-estate-san-jose-ca.com

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Opendoor iBuyer – When RE Tech Is Misused

In an August 1, 2022 press release the FTC had some harsh words for Opendoor Labs, Inc. In addition to imposing a $62 Million fine, the press release said: "There is nothing innovative about...

San Jose Rent Prices Increase Slightly – 1st Time Since March

The San Jose median rent price increased for the first time since March 2020. SF rent prices also increased for the first time since April 2020. They caution that increases are typical for this time...

Are Closed Campuses Affecting Home Prices?

With many college campuses either closed or partially closed, there are fewer renters near the campuses. Has the decrease in rental demand tipped demand for owning homes in those locations? Our MLS...

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High Interest Rates Make New Home Construction Less Feasible

The city of San Jose just released a report titled “Residential Feasibility Analysis” that compares expected construction costs with the value of the construction. The report says the total estimated development costs have increased by approximately 12-13% over the last 18 months. Construction mortgage rates have doubled over the last 12 months and hover above 8.0%. The report analyzed the expected total construction costs of building multi-unit housing and compared it to the expected value of the completed project for housing built to be rented and housing built to be sold. For market-rate homes, the expected residual value per unit ranged from -$322,000 to -$614,000. The residual value is the expected sales price minus the total of the hard costs, soft costs, sales costs, and profit. With these strong negative residual values, a builder would not want to build.

Looking at the San Jose real estate market shows that weak sales prices are not the cause.

The average total development cost for a rental unit in San Jose was estimated to be $549,100 in 2019, $790,800 in 2022, and $890,600 in 2023. In โ€œAttachment A โ€“ Cost of Developmentโ€ the total cost of city permits and fees is estimated at $53,600 to $92,800 per unit.

With little likelihood of new construction increasing the supply of housing, it is hard to see a path for reduced home prices in a healthy economic environment.