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Bay Area Real Estate Market Newsletter ("BAREMN") as of July 5, 2002

Executive Summary

In general, the local real estate market continues to slow. Buyers should consider delaying their purchase to take advantage of this trend. Sellers should price their property aggressively on the low side to accelerate their sale. It is likely a low price today will be above market value within a short period of time. If everyone followed this advice, it definitely would turn out to be accurate. But there are differing opinions and numerous other factors that influence when people buy and/or sell real estate. So only time will tell. These comments are based on the overall market conditions and may not apply to all price and geographic segments of a given market. If you are considering a sale or purchase you should get market trend data for your specific situation.

This table is based on single family homes and reflects recent past trends. SBT is not include as there are not enough sales for a meaningful statistical analysis.

The elimination and actually reversal of the $20,000 per month price increases experienced since January that was forecast in the June 5th issue of the BAREMN did in fact occur, although not exactly as expected. A $10K drop for Santa Clara County was estimated and it was only $3K. Santa Cruz County was expected to be roughly flat but actually dropped $10K.

These price drops are likely caused by a significant reduction in demand. The reduction can be seen in fewer number of sales. SMC 605 to 512, SCC 1309 to 1155, SZC 233 to 216, MTY 322 to 271 and only SBT didn’t follow this trend of reduced sales and actually increasing from 61 to 69. Remember SBT often lags behind SCC. These drops are evidence that the pecord volume of initiated sales experienced earlier this year (December 2001 through March 2002) has passed. The June 5th issue has a likely explanation for the high demand experienced early this year and why that will likely cause a slower than normal period in the near future.

It appears that the real estate market has been cooling ever since approximately April 19^th. This can be seen in higher inventory levels, lower number of sales, and longer marketing time. All three of these factors indicate a market that is slowing. Although these trends are typical at this time of the year, the rate of change had been more significant than any of the last three years until June 28^th. Even with the improvement since June 28^th, the market is still following the typical cooling pattern. This improvement is likely a result of the calendar, not an actual improvement in the market fundamentals. It will take another 10 days or so to verify this theory. The calendar event is that Memorial Day was early in 2002 relative to July 4^th. This gave the 2002 market more time to recover prior to July fourth. Remember every holiday, except Valentine’s Day and Mother’s Day negatively impacts the local real estate market and those two holidays actually have a positive impact.

IF the traditional annual slowing cycle returns now that July 4^th arrived, expect additional downward pressure on prices for the next couple of months and likely until Thanksgiving. The 2002 slowdown will likely be more significant than normal. However, 2002 slowdown should NOT be as significant as 2001. The June 5th issue has a more detailed justification of this outlook. In the near term, expect prices for July 2002 (released in August) for both SMC and SCC to approach their respective April 2002 Sold price levels. SZC will likely drop but just slightly in July to about $520K, which will still be significantly above SZC's April 2002 Sold price level.

Just like the increasing volatility of the stock market, these rapid short duration price swings appear to be happening with increasing frequency in the local real estate market. This makes timing of a real estate purchase or sale increasingly important. As a result, Creekside Realty has started a weekly market update exclusively for our clients. The monthly BAREMN will continue with the current unrestricted circulation.