Thursday, October 15, 2009

October Silicon Valley Real Estate Market Highlights

Here are my observations of September's transactions and 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 showing strength and improvment -- Market activity has continued to display improvement for five months. For instance, in Santa Clara County, September saw an 18% 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 have substantial down payments. There are still only 22 days of unsold inventory on single family residences in Santa Clara County with a price of under $450,000! For those in the range of $450,000 to $600,000, there is only 33 days of unsold inventory. It is similar in San Mateo County.
  • The supply of homes available for sale (inventory) continues to trend lower in each of the four counties without exception. The lower trend is still more pronounced in Santa Clara and Monterey counties.
  • The sale price to list price ratio is above 100% in Santa Clara County and stands at 101.2%, continuing an upward trend; San Mateo stands at 99.8%.
  • The Days of Unsold Inventory (DUI) continues to improve generally in each county for single family residences and condos/townhouses, respectively. Santa Clara's DUI stands at 49 and 42, San Mateo's DUI is 71 and 73, Santa Cruz's DUI is 107 and 154 and Monterey's DUI is 66 and 91.
> Super-heated Seller's Markets? -- White-hot markets are located in Santa Teresa, Blossom Valley, South San Jose, North Valley, East Valley, Evergreen, Milpitas. To refresh you, characteristics of a seller's market are shorter time on the market, fewer number of homes available for sale, higher probability of multiple offers with many sale prices exceeding list prices and a tendency towards price appreciation.

> Buyer's Markets? -- For Santa Clara County, we see buyer's markets in Los Gatos, Los Gatos Mountains with Saratoga the market that exhibits the highest Days of Unsold Inventory at 155. To refresh you, characteristics of a buyer's market are longer time on the market, higher number of homes available for sale, lower probability of multiple offers or even an offer with most sale prices below list price. The tendency is to have price depreciation or stable prices at best case under this market condition.

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) in the prior month which results in days of unsold inventory (DUI). This is not a price thing but a supply-demand thing. For instance, higher-priced area of Palo Alto/Mountain View/Los Altos exhibits a DUI of only 64 which translates into a balanced market.

> Median prices. Up sharply since March but declined from $590,000 last month, it stands at $565,000 for Santa Clara County, $699,250 for San Mateo County. These are down about 6% from the same month a year ago in Santa Clara County and down 7% in San Mateo Ccounty. An entire county's median price level should not be used to decide on whether to buy or sell. I recommend you work with a real estate advisor who can complete an analysis on a much smaller area (as small as a neighborhood!) to form the basis of a strategy.

> 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 22 days of unsold inventory for single family residences below $450,000 and 33 for homes with prices from $450,000 to $600,000. As the price ranges increase, the DUI increases. For Santa Clara County, high-priced homes in the $2,500,000 to $5,000,000 range showed a DUI of 341 or almost one year of inventory whereas in San Mateo County showed a similar result of 331!

> Polarized Market -- Sales of higher-priced homes (above $1,000,000) are sluggish at best, depending upon area. Last month, we had one sale of a $5+ million home in Santa Clara County (4.3 years of unsold inventory!) and just two in San Mateo County (2.0 years of unsold inventory). With slow movements in higher-priced homes and a white-hot situation in lower-priced homes, I call this a polarized market.

> TFT PDQ -- A "TFT" stands for Transaction Fallen Through and has occurred much more frequently of late and is especially evident in short or bank-owned transactions which we call "lender-controlled" transactions. Many buyers walk away from short sales due to their extremely long escrows lasting months as banks sit on paperwork and do not make decisions in a timely manner. So, the short sale listing sells again and again, in many circumstances but does not close. For this reason, I advise buyers to steer away from short sales.

Lender-controlled transactions accounted for 43% of the closings last month in Santa Clara County. We're far better off. Monterey County saw 72% of their closings made up of lender-controlled transactions (short sales and bank-owned). I have anecdotal evidence that in some Central Valley locations the percentage is 90%!

> Sellers Be Sooner -- I continue to 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 move into the fall and the holiday season. 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 like Los Altos Hills, Los Gatos/Monte Sereno, Saratoga, your time is getting closer! Be ready but I think we'll see list prices reduced and sale prices dropping as we get into the holiday season this year. Most years we experience more activity in the early spring and spring so the best time for a purchase is coming up soon!

> Investor's Corner -- Activity continues to trend upwards as more and more investors reenter the market. For Santa Clara County, there were 71 sales during the month with 52 of them in the less than $600,000 price range as that price range had a DUI of just 40 whereas the DUI for residential investment properties above $600,000 jumps to nearly a year. For investors able to purchase higher-priced properties, there is about one year of unsold inventory at current sales demand with at least some motivated sellers.

Thanks for reading Tom McEvoy's Blog -- what are your thoughts, comments, questions, observations?

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