June Silicon Valley Real Estate Market Update

This information summary and analysis uses MLS Listings Inc. (MLS) transactional data for May 2008. For single family homes in Santa Clara County, May saw a reduction of closings of 12% from May 2007. There were 871 closings in the month with 1268 initiated sales (accepted offers) that indicates that closings in June will likely continue higher. This drop from last year occurred across the board in each of the counties I track closely: Santa Clara, San Mateo, Santa Cruz and Monterey. All counties registered more sales than in April, in keeping with the normal seasonal uptrend towards Memorial Day. Monterey County was the only county of the four which saw an increase in closings from May 2007, an indicator of improving market conditions.


Inventory of available single family homes in Santa Clara County was 5,460, down from a record-high 5,540 last month and up from 3,792 in May 2007. San Mateo county is reached an all-time high of 1,720, up three homes from last month. Both Santa Cruz and Monterey available homes dropped from last month but are still near their all-time highs for available homes.


Days of Unsold Inventory (DUI) or the intersection of the inventory (supply) with the recent sales level (demand), shows Santa Clara County at 110, an improvement from 131 last month and even compared to May 2007. San Mateo County is at 99, down from 122 last month. Santa Cruz County has a DUI reading of 147, down sharply from 186 last month. Monterey County showed DUI at 159, also down sharply from 208 last month. Please remember that a lower figure is good here and that a declining measure represents an improvement in the market. Clearly, even with the drops in this indicator, these still are indicating a buyer's market condition as a reading of DUI of 90 or above depicts. For comparison, a seller's market will have a DUI of less than 45 and a balanced market will have a DUI between the two. Keep in mind that these are county-wide averages. The wider area you measure, the statistics are less reliable as a decision tool for any specific area or neighborhood and also that there is often an incredible variation between those areas experiencing terrible market conditions compared to those at virtually the other extreme. As I've mentioned, real estate is local (down to the neighborhood level in some cases) and market conditions can vary within each county and even within cities by a large amount. For instance, within Santa Clara County, Los Altos, Mountain View and Palo Alto have the best market climates in the county with a DUI reading of 52, down from 57 last month, while Morgan Hill, San Martin and Gilroy have the worst reading of 187, dropping from 245 last month. The following table is a ranking of Santa Clara County cities or areas with their current DUI readings compared to last month's calculation as well as my notations as to the type of market the area is in (seller's, balanced or buyer's) and the recent direction of change in this indicator. Even though there are a lot of "better" notations made, many of these areas are still in what we call a "buyer's market" and have poor market climates. Just some markets are much better off than others.

Mountain View, Los Altos, Palo Alto	52	61	Balanced/BETTER
Cupertino	62	62	Balanced/SAME
Sunnyvale	65	86	Balanced/BETTER
Santa Teresa	66	210	Balanced/BETTER
North Valley	77	152	Balanced/BETTER
Campbell	79	94	Balanced/BETTER
Santa Clara	88	125	Balanced/BETTER
Cambrian	90	88	Balanced/WORSE
Almaden Valley	92	85	Buyer's/WORSE
Blossom Valley	95	125	Buyer's/BETTER
South San Jose	108	250	Buyer's/BETTER
Willow Glen	108	150	Buyer's/BETTER
Milpitas	110	138	Buyer's/WORSE
Los Gatos	120	185	Buyer's/BETTER
Evergreen	130	152	Buyer's/BETTER
Downtown SJ	135	178	Buyer's/BETTER
East Valley	146	236	Buyer's/BETTER
Saratoga	148	96	Buyer's/WORSE
Morgan Hill/Gilroy	187	298	Buyer's/BETTER
Los Gatos Mountains	236	340	Buyer's/BETTER

The median price for single family homes in Santa Clara County was $775,000 down from $859,000 the same month a year ago which was just off our record high and down from $799,000 in December. This is a decline of 10.8% from that record high. There is still an emphasis (overweighted percentage) of higher-priced homes sold as opposed to the more affordable homes but not as pronounced as last year when the sub-prime loan problems started in February 2007 and really took hold last August when mortgage interest rates jumped upwards, especially for jumbo size loans. The bottom 10% median selling price was $445,000 in May and showed a decline of 30.0% from the same month a year ago and the top 10% median price was $1,700,000 saw a drop of only 3.9% from May 2007. The northwest quadrant of the county including Palo Alto, Mountain View, Los Altos, Cupertino and parts of Sunnyvale (zip 94087) are at or near their all time highs while county-wide medians are down. With few exceptions, the single family home markets become weaker when you cross Lawrence Expressway heading east. Median price comparisons for single family homes by county for May 2008 were:

County	May 2008	May 2007	Percentage Change
SANTA CLARA	$775,000	$859,000	-9.8%
SAN MATEO	852,500	953,500	-10.6
SANTA CRUZ	626,500	779,000	-19.6
MONTEREY	360,000	695,000	-48.2

I thought it interesting to present the following table that shows the May 2008 change from record high median prices for each county. Of particular note is the extreme price adjustment that has been going on in Monterey County.

County	May 2008	Record High (m/y)	Percentage Change
SANTA CLARA	$775,000	$868,406 (4/07)	-10.8%
SAN MATEO	852,500	1,026,282 (10/07)	-16.9
SANTA CRUZ	626,500	790,000 (8/07)	-20.7
MONTEREY	360,000	799,500 (8/07)	-55.0

The price range with the lowest DUI is called the "sweet-spot" of the market for single family homes. For May, it remains the $1,000,000 to $2,500,000 range. Next comes the $750,000 to $1,000,000 range and then the under $450,000 range. For condo/townhouses the picture is similar but slightly better with a DUI reading of 124, an improvement from 168 last month.

Potential real estate investment buyers continue to see poor numbers for multiunit properties at 403, an improvement from 447 last month. This means under the current rate of sales of multi-unit properties, there are about 1.10 years of unsold supply! Better opportunity to negotiate. The "sweet-spot" of the multi-unit or investor class is also in the range of $1,000,000 to $2,500,000. Lenders have substantially increased the borrower's minimum requirements to obtain a loan for investor property purchases AND many are not allowing the use of home equity credit lines for their down payments so I forecast that this area will remain weak and characterized as a buyer's market. This remains an area of opportunity for smart, long term investors with adequate down payments. Rental vacancies are relatively low and rates continue to increase. In Santa Clara County, rents are estimated to increase 10-12% in 2008.

Why is following all these trends and statistics worth it? I believe that informed clients make the best decisions. The research and staying on top of the changes to market conditions allows me to properly advise my clients on the appropriate strategy to employ so that they make the best decision possible whether they decide to buy or sell. This is one area I part company from other real estate agents as only a relative handful of agents invest the time to study the trends. Most other agents spend the bulk of their time working on self-promotion ads for newspapers, magazines and stuff that fill your mailbox with either "brag" cards or "spray and pray" cards. Beware the various media sound-bites or headlines as they generalize too much (i.e., the national real estate market, the Bay Area real estate market, etc.). If you generalize too much you lose the fineness of being able to use current information strategically to make better decisions.

If you have any comments or questions, please feel free to post them here or send me an email at tom.mcevoy@remax.net.

Thanks for reading!