August Silicon Valley Real Estate Market Highlights

Here are the highlights of July's transactions and market comments for Santa Clara and San Mateo counties. Your comments and questions are always welcome. If you see something in your neighborhood that you are curious about or have a question, please don't hesitate to share with us. You may leave comments here, or contact me through my website.

> Market Overview -- It's been over a year since we called the bottom of the real estate market in Santa Clara County -- March-April 2009. Since then we've seen a general improvement in market conditions and this remains more apparent in Santa Clara County than San Mateo County. Closings of single family residences (SFR) in Santa Clara County decreased to 1,008 from 1,084 last month and was down 18.2% from the same month a year ago. San Mateo County also saw lower SFR closings at 387 from 446 last month and was down 1.5% from the same month a year ago. My analysis of the transactional information reveals:

* The supply of homes available for sale (inventory) is trending upwards in both counties these past six months which is usual for this time of the year. What is not usual is that while the inventory in Santa Clara County is 18.5% higher than the same month a year ago, the inventory in San Mateo is 31.7% higher!

* 55.4% of sellers in Santa Clara County get at least list price for their homes! In San Mateo County, the corresponding percentage is 43.7%. This is an indicator that the overall market remains stronger in Santa Clara County.

* Days of Unsold Inventory (DUI) starts an upward move -- as readers will remember that a lowering of this number translates into a faster market. DUI is conceptually the inverse of inventory turns ratio and represents a calculation using both supply and demand. A lower figure for DUI, then, means improvement. For July, Santa Clara County had a DUI of 75 for SFR, 80 for condos/townhouses and 199 for multi-unit properties. San Mateo County had a DUI reading of 101 for SFR's and 103 for condos/townhouses and 325 for multi-unit properties. Notice that all readings were more positive for Santa Clara County.

> Seller Markets? -- For Santa Clara County the hottest (seller) market areas are South San Jose, North Valley, East Valley, Evergreen Valley parts of San Jose, Cupertino, Sunnyvale. A seller's market has shorter time on the market, fewer number of homes available for sale, higher demand by buyers with a tendency to have multiple offers and sale prices generally exceeding list prices with a potential of price appreciation.

> Buyer's Markets? -- We call them buyer's markets but everything is relative, right? For Santa Clara County, we see buyer's markets in Los Gatos/Monte Sereno, Willow Glen part of San Jose, Saratoga. Los Gatos/Monte Sereno and Willow Glen are my current "Best Buy" areas in the county. What makes a "buyers" market is the relationship of supply to demand -- simply put as higher supply and lower demand. The characteristics of a buyer's market is a longer time on the market, higher number of homes available for sale, lower demand by buyers which translates into a lower probability of multiple offers and a tendency for price stabilization or even price depreciation.

Where do I get "Seller's" and "Buyer's" market information? This is not an opinion or based on price levels 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).

> Median prices continue upward trend -- Santa Clara County median price for SFR's increased 7.6% to $650,000 from $590,000 in July 2009. The median price for condos/townhouses was $345,000 or 4.5% higher than the same month a year ago. San Mateo County's median price for SFR's was $820,000, 6.9% higher than the same month a year ago, whereas condos/townhouses was $435,000, 4.5% lower. Notice that with prices I don't use month to month changes but year over year. This eliminates seasonal fluctuations and is something that newspapers and most online pricing sources haven't figured out yet! Or, perhaps they use this intentionally to scare folks so that they can sell more newspapers! However, I advise my clients NOT to use an entire county's median price level to decide whether to buy or sell or time the market 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 under consideration and advise my clients of the appropriate strategy they should employ to maximize their dollars if they are selling and maximize their house if they are buying.

> Distress Sales Watch -- Santa Clara County's real estate market has changed over the past year. Last year there were more bank-owned listings, this year more short sale listings. Both categories are what we call "lender-controlled". However, the surprising thing is that last year there were 56% of the closings were normal but this year normal transactions have jumped to 71% of the total.

> Why shorts take a long time to close! -- Bank-owned transactions are similar to normal transactions as to length of escrows but short sales can try a buyer's patience. Matter of fact, they try all parties patience. Banks tell us they are working to reduce the process time for short sales but with a number of decision makers involved in a short sale, its anybody's guess. Here's some details as to why they take much longer AND there's no guarantee that they close! The ultimate decision rests with the Investor or owner of the loan. Most people think that if they get a loan through Wells Fargo or Bank of America, the bank owns the loan. Not true, as most of the loans have been sold to other investors (e.g., Fannie, Freddie, FHA, private investor groups, etc.). With this situation, the bank services the loan (collecting payments, producing statements, etc.) but does not own the loan, earning a fee for doing so. Each loan they sold, freed up funds to loan to someone else! Each Investor (and there could be more than one), tries to minimize their losses, each has their unique contractor guidelines (FHA requires TWO appraisals) and there are other interested parties (e.g., mortgage insurance company, Second lien mortgage holder. In fact, where there’s more than one loan, they could easily be held by different banks complicating the process even more. All the parties must be in alignment before a home can be sold. Banks or Investors don't give away properties and when they decide to sell, they are considered sophisticated sellers.

> Back to the Future with Mortgage Rates! -- Remember the movie, Back to the Future, which took place in the 1950's? Well, mortgage rates have fallen to levels not seen since that time. Recent rates are hovering in the low to mid-4% range. Many of today's buyers couldn't believe that mortgage rates hit 18.5% in 1981! With the loan payment being the carrying cost of a purchase and with price adjustments that have already taken place, the affordability of homes is higher.

Need help with understanding the market in your area? Give me a call or email me for a no-obligation consultation and research to help you make a better, more-informed decision.


Thanks for reading my blog. I'm Tom McEvoy, Realtor with RE/MAX Santa Clara Valley -- Let me know your comments, questions, observations you may have or any future topics you'd like me to address.