Wednesday, May 14, 2008

May Silicon Valley Real Estate Market Update

This information summary and analysis uses MLS Listings Inc. (MLS) transactional data for April 2008. For single family homes in Santa Clara County, April saw a reduction of closings of 26% from April 2007. There were 653 closings in the month with 1124 initiated sales (accepted offers) that indicates that closings in May 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. Both San Mateo and Santa Clara counties registered more sales than in March, in keeping with the normal seasonal uptrend towards Memorial Day. Santa Cruz and Monterey counties did increase from last month but only slightly. Closings in San Mateo County were 346 only an 11% decline from April 2007.

Inventory of available single family homes was 5,540, up from 5,303 last month and up from 3,378 in April 2007. This places Santa Clara County at an all-time high. San Mateo county is also at an all-time high of 1,717, up from 1,141 the same month a year ago. Both Santa Cruz and Monterey are near their all-time highs.

Days of Unsold Inventory (DUI) or the intersection of the inventory (supply) with the recent sales level (demand), shows Santa Clara County at 148, down from 173 last month but up sharply from 78 in April 2007. San Mateo County is at 122, up from 105 last month. Santa Cruz County has a DUI reading of 168, down sharply from 209 last month. Monterey County showed DUI at 197, also a sharp drop from 260 last month. Please remember that a lower figure is good here. 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 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 and Palo Alto have the best market climates in the county with a DUI reading of 59, down from 60 last month, while Morgan Hill, San Martin and Gilroy have the worst reading of 245. 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 - 59 (last month - 60) - improving
  • Cupertino - 54 (62) - improving
  • Almaden Valley - 90 (85) - worse
  • Sunnyvale - 75 (86) - improving
  • Cambrian - 136 (88) - worse
  • Campbell - 128 (94) - worse
  • Saratoga - 145 (96) - worse
  • Blossom Valley - 107 (125) - improving
  • Santa Clara - 109 (120) - improving
  • Milpitas - 120 (138) - improving
  • Willow Glen - 148 (151) - improving
  • North Valley - 104 (152) - improving
  • Evergreen - 138 (152) - improving
  • Downtown SJ - 176 (178) - improving
  • Los Gatos - 120 (185) - improving
  • Santa Teresa - 96 (210) - improving
  • East Valley - 180 (236) - improving
  • South SJ - 169 (250) - improving
  • Gilroy, Morgan Hill, San Martin - 245 (298) - improving
  • Los Gatos Mountains - 223 (356) - improving

The median price for single family homes in Santa Clara County was $768,000 down from $868,406 the same month a year ago which was our record high month and down from $799,000 in December. This is a decline of 11.6% 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. The bottom 10% median selling price was $461,000 in April and showed a decline of 28.6% from the same month a year ago and the top 10% median price was $1,736,000 a drop of only 5.7% from April 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. Median prices for single family homes by county in April 2008 were:

  • Santa Clara County - $768,000 (April 2007 was $868,405 or a decline of 11.6%)
  • San Mateo County - $875,000 (April 2007 $976,000 or a decrease of 10.3%)
  • Santa Cruz County - $683,500 (now below their April 2005 median price of $715,000)
  • Monterey County - $405,000 (record high $799,500 set in August 2007 or a decrease of 49.3%)

The price range with the lowest DUI is called the "sweet-spot" of the market. For April 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 $600,000 range. For condo/townhouses the picture is similar but slightly better with a DUI reading of 165, down from 177 last month. Potential real estate investment buyers take heart as the DUI picture has continued to post poor numbers and stands at 447, even though it did improve from last month. This means under the current rate of sales of multi-unit properties, there are about 1.22 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. This remains an area of opportunity for smart, long term investors with adequate down payments. Rental rates continue to increase and 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. 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

Thanks for reading!

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