Thursday, April 17, 2008

April Silicon Valley Real Estate Market Update

This information summary and analysis uses MLS Listings Inc. (MLS) transactional data for March 2008. For single family homes in Santa Clara County, March saw a reduction of closings of 34% from March 2007. There were 583 closings in the month with 869 initiated sales (accepted offers) that indicates that closings in April will be 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. Both San Mateo and Santa Clara counties registered more sales than in February, in keeping with the normal seasonal trend toward Memorial Day. Santa Cruz and Monterey counties did increase from last month but only slightly.

Inventory of available homes was 5,303, up from 4,794 last month and up from 2,812 in March 2007. This places Santa Clara County at an all-time high. The remaining counties all are near their all-time highs for the number of available single family homes.

Days of Unsold Inventory (DUI) or the intersection of the inventory (supply) with the recent sales level (demand), shows Santa Clara County at 173, down from 186 last month but up sharply from 79 in March 2007. San Mateo County is at 105, down from 141 last month, Santa Cruz County at 209, even with last month. Monterey County showed DUI at 260, down from 368 last month. 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 you get, the statistics are less reliable as a decision tool 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 60, down from 55 last month, while Morgan Hill, San Martin and Gilroy have the worst reading of 298. The following is a ranking of selected Santa Clara County cities or areas with their current DUI readings and last month's calculation in parentheses. Even though there are a lot of "improving" notations made, 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.

  • Los Altos, Mountain View, Palo Alto - 60 (last month - 55) - worse
  • Cupertino - 62 (45) - worse
  • Almaden Valley - 85 (101) - worse
  • Sunnyvale - 86 (69) - worse
  • Cambrian - 88 (110) - improving
  • Campbell - 94 (81) - worse
  • Saratoga - 96 (86) - worse
  • Blossom Valley - 125 (146) - improving
  • Santa Clara - 125 (120) - worse
  • Milpitas - 138 (146) - improving
  • Willow Glen - 151 (137) - worse
  • North Valley - 152 (146) - worse
  • Evergreen - 152 (151) - worse
  • Downtown SJ - 178 (177) - worse
  • Los Gatos - 185 (174) - worse
  • Santa Teresa - 210 (319) - improving
  • East Valley - 236 (342) - improving
  • South SJ - 250 (333) - improving
  • Gilroy, Morgan Hill, San Martin - 298 (374) - improving
  • Los Gatos Mountains - 340 (356) - improving

The median price for single family homes in Santa Clara County was $815,000 down from $830,000 the same month a year ago but up from $799,000 in December. This is a decline of 6.1% from the record high reached in April 2007 of $868,400. 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. The bottom 10% median selling price was $500,000 in March and showed a decline of 20% from the same month a year ago and the top 10% median price was $1,680,800 a drop of only 4% from March 2007. The median prices of single family homes in some areas of the county including Morgan Hill, San Martin and Gilroy (South County) and East Valley are now at the level first reached in May 2004! This means that since that time all of the price appreciation or price gains has disappeared. Not so in 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! Median prices for single family homes by county in March 2008 were:

  • Santa Clara County - $815,000 (March 2007 was $830,000 or a decline of 1.8%)
  • San Mateo County - $910,000 ($906,000 or an increase of 0.4%)
  • Santa Cruz County - $645,618 ($751,000 or a decline of 14.0%)
  • Monterey County - $430,000 ($669,000 or a decline of 35.7%)

The price range with the lowest DUI is called the "sweet-spot" of the market. For March it remains the $1,000,000 to $2,500,000 range. Next comes the $750,000 to $1,000,000 range and then the $600,000 to $750,000 range. For condo/townhouses the picture is similar but slightly better with a DUI reading of 177, down from 187 last month. Potential real estate investment buyers take heart as the DUI picture has continued to post poor numbers and stands at 563, down from 520. This means under the current rate of sales of multi-unit properties, there are about 1.5 years of unsold supply! The "sweet-spot" of the multi-unit or investor class is also the range $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. Read an opportunity for smart, long term investors with adequate down payments.

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. 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. I think most other agents spend time working on self-promotion ads for newspapers, magazines and stuff that fill your mailbox with either "brag" cards or "spray and pray" cards. The various real estate markets are too complex for media sound-bites or headlines as they generalize too much (i.e., the national real estate market, the Bay Area real estate market, etc.) and you lose the fineness of being able to use information strategically to make better decisions.

Just yesterday, the San Jose Mercury News had an article about the 24% drop in Southern California median prices. It's obvious that you don't buy or sell a home in Southern California but in a particular neighborhood in a particular city. It is therefore clear that you need strategies to deal with these differing market conditions and an agent who is able to digest the statistics and trends to better advise their client.

If you have any comments or questions, please feel free to post them here or send me an email at

Thanks for reading!

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