Thursday, September 11, 2008

September Silicon Valley Real Estate Market Update

This information summary and analysis uses MLS Listings Inc. (MLS) transactional data for August 2008. For single family homes in Santa Clara County, August saw an increase in closings of 33% from August 2007. There were 1,044 closings in the month with 1,260 initiated sales (accepted offers) that indicates that closings in September will likely remain at about the same level as not all accepted offers close escrow. However, closings of condos and townhouses decreased by 14% from the same month last year.

Inventory of available single family homes in Santa Clara County was 5,166, down from 5,368 last month but up 14% from August 2007. San Mateo County inventory decreased to 1,542, 6% higher than the same month a year ago. San Mateo and Monterey counties have seen a similar downtrend in available single family homes whereas inventory in Santa Cruz County has been flat these past five months.

Days of Unsold Inventory (DUI) or the intersection of the inventory (supply) with the recent sales level (demand), shows Santa Clara County at 125, down from 131 last month and compares favorably to the 210 figure for August 2007. San Mateo County is at 112, up from 105 last month. Santa Cruz County has a DUI reading of 165, down slightly 169. Monterey County showed DUI at 122, down from 136 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. 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 51, representing a balanced market while Los Gatos has the worst reading of 170 (actually, Los Gatos Mountains is higher at 270). 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.

Sunnyvale 51 55 Balanced/BETTER
North Valley 63 68 Balanced/BETTER
Milpitas 63 65 Balanced/BETTER
Blossom Valley 64 68 Balanced/BETTER
Cambrian 76 69 Balanced/WORSE
Cupertino 79 57 Balanced/WORSE
South San Jose 82 90 Balanced/BETTER
East Valley 82 92 Balanced/BETTER
Santa Teresa 90 74 Balanced/WORSE
MtView/LA/PA 93 77 Buyer’s/WORSE
Downtown SJ 93 106 Buyer's/BETTER
Santa Clara 94 97 Buyer's/BETTER
Evergreen 96 106 Buyer's/BETTER
Campbell 102 96 Buyer's/WORSE
M Hill/Gilroy 143 141 Buyer's/WORSE
Almaden Valley 144 139 Buyer's/WORSE
Willow Glen 146 145 Buyer's/WORSE
Los Gatos 170 211 Buyer's/BETTER
Saratoga 166 130 Buyer's/WORSE
LG Mountains 270 359 Buyer's/BETTER

The median price for single family homes in Santa Clara County was $648,500, down 24.6% from $860,000 the same month a year ago and down 18.8% 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. Lower-priced homes account for one-third of the market -- a significant increase in the percentage this price range occupied of the market in recent months. The bottom 10% median selling price (10th percentile) was $355,270 in August and showed a decline of 43.1% from the same month a year ago and the top 10% median price (90th percentile) was $1,513,500, saw only a drop of 16.7% from August 2007's record high of $1,816,000. 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.

The price range with the lowest DUI reading we call the "sweet-spot" of the market for single family homes. For August, it remains at the $450,000 and under range. It's DUI reading is 87. Next comes the $450,000 to $600,000 range with a DUI reading of 127.

Potential real estate investment buyers take heed: the DUI for residential investment property is at 324, down from 502 and a huge improvement from last month. This means under the current rate of sales of multi-unit properties, there are about 0.90 years of unsold supply! As previously mentioned, 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

Thanks for reading!

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