July Silicon Valley Real Estate Market Update

This information summary and analysis uses MLS Listings Inc. (MLS) transactional data for June 2008. For single family homes in Santa Clara County, June saw a reduction of closings of 5% from June 2007. There were 927 closings in the month with 1281 initiated sales (accepted offers) that indicates that closings in July will likely continue higher. This drop in closings from last year occurred also in San Mateo County of 18.2% and Santa Cruz County of 6.1%. In Monterey, however, closings set a record of 257, 110% higher than June 2007. All counties registered more closings than in May.


Inventory of available single family homes in Santa Clara County was 5,342, down from a record-high of 5,540 set in April and up from 3,963 in June 2007. San Mateo County reached an all-time high of 1,720 in May but dropped to 1,639 for June. Both Santa Cruz and Monterey counties numbers of available homes dropped from last month but are still 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 125, an improvement from 130 last month and 117 compared to June 2007. San Mateo County is at 95, down from 99 last month. Santa Cruz County has a DUI reading of 145, down from 147 last month. Monterey County showed DUI at 146, also down from 159 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, Sunnyvale has the best market climate in the county with a DUI reading of 49, on the cusp of a seller's market and down from 74 last month, while Morgan Hill, San Martin and Gilroy have the worst reading of 185, dropping from 187 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	59	Balanced/BETTER
Cupertino	70	54	Balanced/WORSE
Sunnyvale	49	75	Balanced/BETTER
Santa Teresa	81	96	Balanced/BETTER
North Valley	76	104	Balanced/BETTER
Campbell	94	128	Buyer's/BETTER
Santa Clara	97	109	Buyer's/BETTER
Cambrian	107	136	Buyer's/BETTER
Almaden Valley	100	90	Buyer's/WORSE
Blossom Valley	88	107	Balanced/BETTER
South San Jose	94	169	Buyer's/BETTER
Willow Glen	107	148	Buyer's/BETTER
Milpitas	78	120	Balanced/BETTER
Los Gatos	135	120	Buyer's/WORSE
Evergreen	114	138	Buyer's/BETTER
Downtown SJ	133	176	Buyer's/BETTER
East Valley	123	180	Buyer's/BETTER
Saratoga	135	145	Buyer's/BETTER
Morgan Hill/Gilroy	185	245	Buyer's/BETTER
Los Gatos Mountains	539	223	Buyer's/WORSE

The median price for single family homes in Santa Clara County was $750,000 down from $865,000 the same month a year ago which was just off our record high of $868,406 set in April 2007 and down 6.1% from the December 2007 reading of $799,000. 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 $420,000 in June and showed a decline of 33.9% from the same month a year ago and the top 10% median price was $1,663,600 only saw a drop of 3.4% from June 2007. The northwest quadrant of the county including Palo Alto, Mountain View, Los Altos, Cupertino and parts of Sunnyvale (zip 94086 and 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 June 2008 were:

County	June 2008	June 2007	Percentage Change
SANTA CLARA	$750,000	$865,000	-13.3%
SAN MATEO	892,500	999,000	-10.7
SANTA CRUZ	610,000	780,000	-21.8
MONTEREY	364,000	717,000	-49.2

I thought it interesting to present the following table that shows the June 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	$750,000	$868,406 (4/07)	-13.6%
SAN MATEO	892,500	1,026,282 (10/07)	-13.0
SANTA CRUZ	610,000	790,000 (8/07)	-22.8
MONTEREY	364,000	799,500 (8/07)	-54.5

The price range with the lowest DUI reading we call the "sweet-spot" of the market for single family homes. For June, it changed to the $750,000 to $1,000,000 range. Next comes the under $450,000 range. For condo/townhouses the picture is similar but slightly better with a DUI reading of 125, an improvement from 155 last month with a sweet-spot being the $1,000,000 to $2,500,000 range followed by the $600,000 to $750,000 range.

Potential real estate investment buyers continue to see poor numbers for multiunit properties at475. This means under the current rate of sales of multi-unit properties, there are about 1.30 years of unsold supply! Better opportunity to negotiate. The "sweet-spot" of the multi-unit or investor class is in the range of $600,000 to $750,000 range. 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 dropping and we see strong increases in rental rates continue. 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 most 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!