August Silicon Valley Real Estate Market Update

This information summary and analysis uses MLS Listings Inc. (MLS) transactional data for July 2008. For single family homes in Santa Clara County, July saw an increase in closings of 2% from July 2007. There were 892 closings in the month with 1276 initiated sales (accepted offers) that indicates that closings in August will likely remain at about the same level as not all accepted offers close escrow. Closings increased also in San Mateo County by 13% and Santa Cruz County of 7%. In Monterey, closings set another record of 259, 84% higher than July 2007.

Inventory of available single family homes in Santa Clara County was 5,368, up slightly from last month but down from the record-high of 5,540 set in April. This is still a 27% higher inventory level than in July 2007. San Mateo County inventory dropped a bit to 1,601, 16% higher than the same month a year ago. In Santa Cruz County, inventory increased from June but is 7% lower than in July 2007. Monterey County shows a lower inventory than last month as well as lower than July 2007 by 14%.


Days of Unsold Inventory (DUI) or the intersection of the inventory (supply) with the recent sales level (demand), shows Santa Clara County at 131, a slight increase from the 125 last month and compares favorably to the 139 figure for July 2007. San Mateo County is at 105, up from 95 last month. Santa Cruz County has a DUI reading of 169, up from 145 last month but much more favorable than the 199 last year. Monterey County showed DUI at 136, also down from 146 last month and a huge improvement from the 485 reading last year. 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. As a 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 55, representing a balanced market while Los Gatos have the worst reading of 211. 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	77	52	Balanced/WORSE
Cupertino	57	70	Balanced/BETTER
Sunnyvale	55	49	Balanced/WORSE
Santa Teresa	74	81	Balanced/BETTER
North Valley	68	76	Balanced/BETTER
Campbell	96	94	Buyer's/WORSE
Santa Clara	97	109	Buyer's/BETTER
Cambrian	69	107	Buyer's/BETTER
Almaden Valley	139	100	Buyer's/WORSE
Blossom Valley	68	88	Balanced/BETTER
South San Jose	90	94	Buyer's/BETTER
Willow Glen	145	107	Buyer's/WORSE
Milpitas	65	78	Balanced/BETTER
Los Gatos	211	135	Buyer's/WORSE
Evergreen	106	114	Buyer's/BETTER
Downtown SJ	106	133	Buyer's/BETTER
East Valley	92	123	Buyer's/BETTER
Saratoga	130	135	Buyer's/BETTER
Morgan Hill/Gilroy	141	185	Buyer's/BETTER
Los Gatos Mountains	359	539	Buyer's/BETTER

The median price for single family homes in Santa Clara County was $719,500, down 17.1% from $856,500 the same month a year ago and down 9.9% from the December 2007 reading of $799,000. A sudden change in the market shows that there are many more lower-priced homes that closed, thus causing the drop in median and the mix of homes shifted from the higher-priced homes to the more affordable homes. The bottom 10% median selling price (10th percentile) was $400,000 in July and showed a decline of 35.7% from the same month a year ago and the top 10% median price (90th percentile) was $1,647,500, only saw a drop of 3.0% from July 2007. The northwest quadrant of the county including Palo Alto, Mountain View, Los Altos, Cupertino and parts of Sunnyvale (zip 94086 and 94087) have seen price appreciation and are at 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 July 2008 were:

County	July 2008	July 2007	Percentage Change
SANTA CLARA	$719,500	$856,500	-16.0%
SAN MATEO	800,000	1,011,000	-20.9
SANTA CRUZ	612,000	780,000	-21.5
MONTEREY	325,000	685,000	-52.6

I thought it interesting to present the following table that shows the July 2008 change from record high median prices for each county. Of particular note is the extreme price adjustment that has taken place in Monterey County. A little perspective is appropriate here. Median prices in Monterey County first reached the $325,000 level in January 1999. That means that in the last 11 months, 10 years of appreciation has been wiped out. Main cause? The extreme overbuilding that occured in the county. Santa Clara County did not have the building binge so was more insulated from the extreme price depreciation.

County	July 2008	Record High (m/y)	Percentage Change
SANTA CLARA	$719,500	$868,406 (4/07)	-17.1%
SAN MATEO	800,000	1,026,282 (10/07)	-22.0
SANTA CRUZ	612,000	790,000 (8/07)	-22.5
MONTEREY	325,000	799,500 (8/07)	-59.3

The price range with the lowest DUI reading we call the "sweet-spot" of the market for single family homes. For July, it changed again to the $450,000 and under range. Next comes the $450,000 to $600,000 range. For condo/townhouses the picture is flipped around with the sweet-spot being the $750,000 to $1,000,000 range followed by the $600,000 to $750,000 range.

Potential real estate investment buyers take heed: the DUI for residential investment property is at 502. This means under the current rate of sales of multi-unit properties, there are about 1.40 years of unsold supply! Better opportunity to negotiate. As mentioned last month, many lenders have substantially increased the borrower's minimum requirements to obtain a loan for investment 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 that have an appropriate long-term investment horizon. Rental vacancies are relatively low and dropping and we see strong increases in rental rates continue. This year, rents are estimated to increase 10-12% in Santa Clara County.

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!