Thursday, July 9, 2009

July Silicon Valley Real Estate Market Update

Here are my observations of the most recent market actions for Santa Clara, San Mateo, Santa Cruz, and Monterey counties. You are encouraged to leave your comments and questions or even update us on what you are witnessing in your neighborhood or area.

> Market continues in turnaround mode! My recent posts have mentioned that the market activity is turning around. Well, June's activity continues the trend and provides more evidence that we could have seen the bottom! My analysis of the transaction information reveals:
  • Buyers are all but tripping over each other to submit offers for homes in the more affordable areas of Santa Clara, San Mateo, Santa Cruz, and Monterey counties.
  • The supply of homes available for sale (inventory) continues to trend lower in each of the four counties, except a slight uptick in Santa Cruz County. Normally, inventory is increasing at this time of the year. Lowered inventory and strong demand means HIGHER PRICES!
  • The number of initiated sales (in contract) have jumped in Santa Clara County and is trending higher in the other counties, too. Monterey County set a record in the number of closings!
  • The Days of Unsold Inventory (DUI) has improved (decreased) substantially in the last year in each county. Santa Clara's DUI stands at 56, San Mateo's DUI is 74, Santa Cruz's DUI is 92 and Monterey's DUI is 69.
  • Median prices have increased in every county.
> Bank-owned and Short Sale Home Marketing -- Bank-owned homes are also called foreclosures or REO's for "real estate owned" (by a bank). Short sale homes are those still owned by the seller (not by the bank) but with the estimated proceeds of a sale not sufficient to cover the loan balance. For transactions with both types of homes, offers need the bank's approval. Now, the bank in each case has already lost money but their marketing has recently taken on a new look. They've given approval to the listing agents they hire to use an extremely low list price strategy to draw a huge number of offers and in a hurry too!. One such case with a short sale listing, the listing agent received 175 offers! But, what did the home sell for? With a list price of $200,000, I estimated the home's fair market value range at $400,000 to $450,000. Sale price was $438,000. Yes, the come-on is too good to be true but please remember that list price doesn't mean anything in real estate.

> Seller's Markets? -- Yes! the hottest markets in Santa Clara County were Blossom Valley, Cambrian, North Valley and Milpitas. To refresh you, characteristics of a seller's market are shorter marketing time, fewer number of homes available for sale, higher probability of multiple offers with many sale prices exceeding list prices with added price appreciation.

> Buyer's Markets? -- OK, yes, there are some of those too! Areas of Santa Clara County experiencing a buyer's market condition are: Los Gatos, Saratoga and Willow Glen. To refresh you, characteristics of a buyer's market are longer marketing time, higher number of homes available for sale, lower probability of multiple offers or even an offer with most sale prices below list price with price depreciation.

Where do I get "Seller's" and "Buyer's" market information? This is not an opinion thing but a calculation I make using the number of homes for sale (supply) and the number of sales (demand) which results in days of unsold inventory (DUI).

> Median prices. Stuck at $450,000 for Santa Clara County these past few months, moved up to $470,000 in April increased yet again to $490,000. Where are we now? The June median price (the middle transaction) for Santa Clara County jumped to $550,250! This is down 26.6% from the same month a year ago. Less lower-priced homes in the mix of what sold last month was the main culprit along with a slight awakening of those higher priced home sales. I do repeat, though, that an entire county's median price level should not be used as part of a strategy for buying or selling.

> Tale of Two Markets -- Sales of affordable homes mainly in the less than $450,000 level have gotten even hotter than last month. There are just 27 days of unsold inventory for single family residences below $450,000; 36 for those less than $600,000. Even with adjustments made for the portion of transactions that do not close escrow, these figures represent seller's markets with one characteristic being price appreciation.

However, sales of higher-priced homes are sluggish at best. For instance, there have been no sales of $5+ million homes in the last five weeks in Santa Clara County. Last month, there were 87 sales of homes with a list price of at least $1,000,000 with the highest a home that sold in Monte Sereno with a list price of $3,485,000. For a twist, Sunnyvale saw seven such sales, the same as Palo Alto!

> Sellers Be Sooner -- I maintain my recommendation for sellers of higher-priced homes that they should consider selling sooner and having an initially more-aggressive list price as the market usually softens when we go deeper into summer. In any case, check with a Realtor knowledgeable about the technical aspects of the market conditions to guide you in positioning your home for maximum activity and price while minimizing time on market.

For those considering a purchase of a home in an expensive area, your time is getting closer! Be ready but I think we'll see list prices reduced and sale prices dropping more before they are likely headed higher.

> Investor's Corner -- Activity continues to trend upwards as more and more investors reenter the market. For instance, there were 46 closings in Santa Clara County, more than double the activity in the last few months. There were just 13 closings in San Mateo County, a much smaller market than Santa Clara County.

Thanks for reading -- what are your thoughts, comments, questions?