Friday, December 11, 2009

December Silicon Valley Real Estate Market Highlights

Here are the highlights of November's transactions and market actions for Santa Clara, San Mateo, Santa Cruz, and Monterey counties. Your comments and questions are welcome. If you have an update as to what you are witnessing in your neighborhood, please don't hesitate to share with us. You may leave comments here, or contact me through my website.

> Market continues to show improvement -- March 2009 saw the trend change in Santa Clara County. Market activity has continued to display improvement for seven months and saw closings in Santa Clara County reach 899 versus an anemic 613 in November 2008 or 46% more. For some perspective, this November 2009 level of closings represents just slightly under the ten year average. My analysis of the transactional information reveals:

* The supply of homes available for sale (inventory) continues to trend lower in each of the four counties without exception. This trend has been virtually uninterrupted since February 2009 and it is still more pronounced in Santa Clara and Monterey counties. Santa Clara County available homes inventory has fallen 58% from November 2008.

* The sale price to list price ratio continues above 100% in Santa Clara County and stands at 100.7%, continuing an upward trend; San Mateo stands at 99.5%.

* The Days of Unsold Inventory (DUI) continues to improve generally in each county for single family residences and condos/townhouses, respectively.

> Super-heated Seller's Markets? -- You bet! Blossom Valley, South San Jose, Evergreen, Santa Teresa, East Valley, Santa Clara, North Valley, Milpitas. The 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 Mountains, Los Gatos and Saratoga. Saratoga exhibits the highest Days of Unsold Inventory in the county at 265 and is currently the "Best Buy" area in the county. 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). Additionally, this is not based on price levels but a supply-demand relationship. For instance, the higher-priced area of Palo Alto/Mountain View/Los Altos exhibits a DUI of only 64 which translates into a balanced market.

> Median prices -- Santa Clara County median prices took another jump upwards last month and now stands at $605,000 versus $593,250 or 2.0% higher from October and $515,000 or 17.5% higher over November 2008. San Mateo County's median reached $725,000 and now stands 8.9% higher than November 2008. I coach my clients to not use an entire county's median price level to decide on whether to buy or sell but use the trend information in a general manner. To formulate an effective strategy, I use analysis of the supply-demand characteristics of the neighborhood, in most cases.

> 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 24 days of unsold inventory for single family residences below $450,000 and 40 for homes with prices from $450,000 to $600,000. As the price ranges increase, the DUI increases in what we call a normal pattern. For Santa Clara County, high-priced homes in the $2,500,000 to $5,000,000 range showed a DUI of 206 or about seven months of supply whereas in San Mateo County showed a similar result of 150 or about five months of supply.

> Polarized Market -- Sales of higher-priced homes (above $1,000,000) are sluggish at best, depending upon area. Last month, there were just one sale of a $5+ million home in Santa Clara County (equivalent to about 3.5 years of unsold inventory!) and none in San Mateo County. With slow movements in higher-priced homes and a white-hot situation in lower-priced homes, I call this a polarized market.

> Phoenix Rising/Bay Area Falling -- Not necessarily a good thing is that the amount of homes listed for sale climbed in Phoenix and Tucson, AZ, Las Vegas, NV, Los Angeles and Orlando, FL. This according to the ZipRealty latest monthly survey.

The San Francisco Bay Area saw this number drop about 9%, exceeding all other metro areas in the country. Now, inventory usually drops every year at this time of year but the rate of decline has been greater than the average seasonal tendency.

> Sellers Be Sooner Still -- I continue to maintain my recommendation for sellers of higher-priced homes, especially those above $1 million 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 winter/holiday season. Sellers need to be positioned properly otherwise they risk languishing on the market.

For those considering a purchase of a home in an expensive area like Los Altos Hills, Los Gatos/Monte Sereno, Saratoga, an opportune time for negotiating is upon us! Some motivated sellers are reducing their list prices but as you may know, not all sellers have to sell.

> Investor's Corner -- Activity continues to trend upwards as more and more investors reenter the market, many of them are completing all cash purchases, especially in the more affordable price ranges. For Santa Clara County, there were 63 sales during the month with 41 of them in the less than $600,000 price range as that price range had a DUI of just 47 whereas the DUI for residential investment properties above $600,000 jumps to nearly a year. For investors who have the ability to purchase higher-priced properties (above $1,000,000), currently there is about 1.4 years of unsold inventory. This represents a BUYER'S market as I'm sure there are at least some motivated sellers in that range!

Thanks for reading my blog. I'm Tom McEvoy -- Let me know your comments, questions, observations you may have or any future topics you'd like me to address.