Thursday, October 9, 2008

October Silicon Valley Real Estate Market Update

This information summary and analysis uses MLS Listings Inc. (MLS) transactional data for September 2008. For single family homes in Santa Clara County, September saw an increase in closings of 73% from September 2007. There were 899 closings in the month with 1286 initiated sales (accepted offers) that indicates that closings in October will likely remain at about the same level as not all accepted offers close escrow. Closings increased also in San Mateo County by 9% and Santa Cruz County of 64%. In Monterey, closings were 308, 250% higher than September 2007.

Inventory of available single family homes in Santa Clara County was 4,981, down from last month but up from the same month last year. San Mateo County inventory increased a bit to 1,653, but dropped slighted from September 2007. In Santa Cruz County, inventory decreased from last month and also from the same month last year. Monterey County shows a lower inventory than last month as well as lower than September 2007.

Days of Unsold Inventory (DUI) or the intersection of the inventory (supply) with the recent sales level (demand), shows Santa Clara County at 121 for single family residences and 135 for condos/townhouses, a slight drop from last month. San Mateo County is at 112 and 129, respectively. Santa Cruz County has a DUI reading of 167 and 141, respectively. Monterey County showed DUI at 124 and 202, respectively. 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 that are stable. 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.

The median price for single family homes in Santa Clara County was $600,000, down 29.4% from $850,000 the same month a year ago and down 24.9% 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 $330,000 in September and showed a decline of 46.3% from the same month a year ago and the top 10% median price (90th percentile) was $1,331,869, saw a drop of 20.6% from September 2007.

The price range with the lowest DUI reading we call the "sweet-spot" of the market for single family homes. For September, it was the $450,000 and under range. Next comes the $450,000 to $600,000 range. For condo/townhouses the picture looks similar with the sweet-spot being the $300,000 and under range.

Potential real estate investment buyers take heed: the DUI for residential investment property is at 316. This means under the current rate of sales of multi-unit properties, there is about 11 months 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. Matter of fact, we now see much better rates of return on rentals than previous. Rental vacancies are relatively low and steady. 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 -- both buyers and sellers. 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 an example of how I invest my time to benefit my clients and part company from most other real estate agents. 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're curious about market conditions in a specific area, please don't hesitate to give me a call.

Your comments are welcome! Please feel free to post them here or send me an email.

Thanks for reading!