Tuesday, August 11, 2009

August Silicon Valley Real Estate Market Highlights

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 improving! Market activity continues to display improvement, something that we've been saying for the past four months. For instance, in Santa Clara County, July saw a 38% increase in closings over the same month last year. My analysis of the transactional information reveals:
  • Buyers continue to trip over each other to submit offers for homes in the more affordable areas of Santa Clara, San Mateo, Santa Cruz, and Monterey counties. Many offers submitted are for all cash or substantial down payments like 50%. There are only 20 days of unsold inventory on single family residences in Santa Clara County with a price of under $450,000.
  • The supply of homes available for sale (inventory) continues to trend lower in each of the four counties, except a flattening 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 changed directions and heading lower as summer periods are normally less active in real estate. July initiated sales in Santa Clara County was still 18% higher than the same month a year ago.
  • The Days of Unsold Inventory (DUI) has generally improved (decreased) substantially in the last year in each county for single family residences. Santa Clara's DUI stands at 55 (47 for condos and townhouses), San Mateo's DUI is 75, Santa Cruz's DUI is 102 and Monterey's DUI is 64.
  • Median prices have increased in every county and is up 31% in Santa Clara County since March!
> 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!.

Recently, I sold a bank-owned home in San Jose that generated 17 offers as my buyer's offer beat the other 16. As first time buyers who were pre-approved for an 80% loan, they are extremely pleased to be in contract. I employed my research on the fair market value of those in the same neighborhood to recommend an offer price range and my buyers accepted my recommendation.

> Seller's Markets? -- Yes! the hottest markets in Santa Clara County were Santa Teresa, South San Jose, Blossom Valley, North Valley, East Valley, Santa Clara, Cambrian, Evergreen, Milpitas and Downtown San Jose. 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: Mountain View, Los Altos, Palo Alto, Willow Glen in San Jose, Saratoga and Los Gatos. 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. Up 31% since March to $590,000, Santa Clara County was at $450,000 as recently as March! This is down 18% from the same month a year ago. Less lower-priced homes in the mix of what sold last month and a corresponding higher portion of moderate homes and higher-priced homes was the main culprit. 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 -- analysis must be done on a much smaller area as small as a neighborhood to form the basis of a strategy.

> Lost Wages and Other Things -- For this, "lost wages" affectionately refer to Las Vegas. Sales in Las Vegas in June 2009 were 44% higher than in June 2008 - a welcome sign. Median price was 41% lower than the same month a year ago. Comparable numbers for Portland were a 6% drop in sales and a 13% drop in median price. For Phoenix, the number of sales spurted by 40% but the median price was 37% lower than the same month a year ago.

> Tale of Two Markets -- Sales of affordable homes in Santa Clara County less than $450,000 level have gotten even hotter than the past few months. There are just 20 days of unsold inventory for single family residences below $450,000. There are more homes in sales pending status than available for sale! The DUI was 38 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, we are back to having no sales of $5+ million homes in the last five weeks in Santa Clara County. Last month, there were 90 sales of homes with a list price of at least $1,000,000 with the highest a home that sold in Palo Alto with a list price of $3,700,000. Sunnyvale saw four such sales, 13 in Cupertino. For closings, there were 62 that closed escrow last month in the county, a higher number than in previous months which help increase the median price.

> 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. There are more than ten months of unsold inventory in the $2.5 million to $5.0 million price range on the market in Santa Clara County.

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.

> Santa Clara County Foreclosure Ranking -- With all the "talk" about the amount of foreclosed homes in the county, here's a couple of things to think about. First, Sean O'Toole of ForeclosureRadar said recently that Santa Clara County ranks 45th among 54 counties in California in foreclosures per population. My yes, we have a lot of dwellings to house more than 1.6 million folks in the county as there are some 430,000 single family homes, condos and townhomes in the county according to the Santa Clara County Tax Assessor's office. Second, more than 30% of these have NO loan on them and are owned "free-and-clear" and have enjoyed their mortgage-burning parties. Of those that do have a loan, the rate of foreclosure based on the 591 homes that were foreclosed in the county in June would be about 2.25% or about one out of 44 homes.

> Investor's Corner -- Activity continues to trend upwards as more and more investors reenter the market. For Santa Clara County, there were 75 sale pending properties during the month with more than 50 of them in the less than $600,000 price range as that price range had a DUI of just 44, making it on the border between balanced and seller's market. Not so with higher priced multi unit properties.

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