Pending Sales shows a strong market

I know you have come to expect that I usually give a positive “spin” to every piece of news I read.  That’s my nature.  With all the bad news out there, we need some people in the world who want to accentuate the positive!

In residential real estate, we have one thermometer we like to use to check the temperature of the market — Pending Home Sales.  This indicates the number of homes where a buyer has made an offer that the seller has accepted and they are moving forward toward closing the sale.  Typically if the number of Pending homes is around 25% of the total Active homes for sale it is a solid and balanced market.  If the Pending number for any given area is lower than 25% it is considered a weaker market; greater than 25% is consider a strong market.

In my opinion, the most recent news covering the period through end of July is very positive.  First of all, Pending sales for Santa Clara County are up to now over 2300 which is over 1000 more homes Pending than we had at this time last year, giving a 26% Pending ratio for the county.  This tells me that more buyers have come into the market to make offers and more sellers have gotten realistic about accepting reasonable offers.

Most noteworthy are the Los Gatos and Saratoga markets which are at their lowest Pending ratio of recent history — only 17%.  Conversely, Sunnyvale is at the highest of the entire county at 37%!

Every piece of news has two sides, but the media loves to interpret it on the negative side because bad news sells.  But how you choose to look at it or what you choose to believe all depends on your personal choice – this is the power of “law of attraction”.


Public schools or Private school

Schooling is one of the highest priorities for most families when they start looking to buy a home.  This makes sense — good schools usually mean good neighborhoods, a good community of families who care about their children, and it usually means higher priced homes due to greater desirability.  By contrast, when a home is in an area that does not have good public schools, homes may cost a little less but parents may be forced to take the private school path.

Private schools can be expensive.  We live close to Presentation High School, an all-girls Catholic school that is very highly regarded in our community.  Parents rave about the academics and sports and believe their children are getting a fantastic well-rounded education in preparation for college — at a cost of $1000 per month, per child.

I don’t have other schools for comparison so lets use this as a “standard” for this discussion.  If an average family has 2 children, you should budget $2000/month for private schooling if you take that path.  This may be the best way to go for your family, but I would like to suggest a different approach before you make that decision.

If you are comfortable budgeting $2000/month to send your children to private schools, why not look at better public schools and use the $2000/month you would be spending on private school tuition as part of your mortgage payment instead?  For $2000/month, you can afford a loan of $316k assuming 6.5% interest.

Let’s say you are looking to buy a home in the $650k range because that’s all you can afford if you plan to send your kids to private schools.  But if instead of sending them to private schools, you go to public schools, now you can apply the $2000/month to your mortgage and afford a $966k home.  There is a big difference in where you are buying a home if your budget is $966k compared to $650k!

My thought is that it may make more sense to put $2000 per month into a house payment so you can buy a home in a better neighborhood and be able to watch your home grow in value at a higher rate over time, than to put that money into private schools for your children — just a thought.