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Bay Area Real Estate Market Newsletter ("BAREMN") as of November 5, 2004

Executive Summary   DRAFT

Although the real estate market remains robust based on any historical benchmark, prices have leveled off and have dropped from their peak of $642,000 down to $625,000 for August, increasing slightly to $630,000 for September and now $636,000 for October. Volume is also decreasing but remains above normal. This is 'normal' behavior for the Santa Clara County real estate market for this time of the year. San Mateo County recovered slightly to $761,000 after experiencing a second significant decrease to $750,000 in September, down from $779,000 in August and down from $800,000 in June.

The local real estate market continued to improve as we have moved past the annual holidays. The is signs of normal slowing.

Inventory - has started to decrease. Inventory remains normal based on the past 6 years. There is wide spread believe that inventory is very limited. This is because last year had unusually high inventory. Also, with the record volume of initiated sales, normal inventory seems inadequate. Inventory has been decreasing more rapidly than normal all year. If this continues there will be a lack of inventory. 

Median Days On the Market – The marketing time for initiated sales leveled off after increasing last month. The true increase in DOM is greater than the data indicates because listing agents can now artificially reset the DOM to zero by simply re-listing the property as a result of the changes at the MLS. 

Median List Price – $638,500 setting an all time record high.

Number of initiated sales - Initiated sales that had been setting all time records in both terms of absolute number of homes entering escrow each day and in terms of percentage of normal volume for the time of year. Sales have dropped for the fourth month in a row. Sales reached 170% or normal but is currently down to 148% of normal. Part of this record volume is artificially caused by the MLS issues mentioned above. The media typically doesn't report on initiated sales until they are converted to completed sales that are less effected by the MLS errors. 

Sold Price - $636,000 After setting new record highs for several months prices have started to drop. SCC peaked in June at $642,000, then fell to $625,000 in August, rebounding slightly in September to $630,000 and now $636,000. SMC dropped $50,000 from their peak of $800,000 in June, but has now increased to $761,000. 

 Sold price tends to lag behind market changes and reflects market conditions 25 to 95 days ago.

Average Sold Price to List Price ratio – 100.7% This has actually dropped each month since April and is an indication that the market has been slowing even though it remains strong. We consider 98.5% normal. Remember, this reflects market conditions 25 to 95 days ago because of the length of escrow and how this data is collected. This is one of the few times where a mean (average) is more useful than the median. The median would almost always be100%.

Percent of completed sales with a Sold Price greater than the List Price – 52.1%. This indicates that 1 out of every 2 properties receives more than the seller is asking. This usually happens because of multiple offers. This has also been dropping slightly since May.

Number of Completed Sales – 1383  This is the fourth month in a row with a drop. First losing 223 transactions from June to July, then 96 losing an additional transactions from July to August, losing 73 more transactions from August to September and now 90 fewer transactions in October.

The multi-year improvement in price indicates that real estate remains a good long-term investment. Real estate market prices that have been flat for the last several years (April 2000 through February 2004) have clearly reached a new level. June's median Sold price was the near term peak. 

We continue to be amazed by the volume of sales combined with the general weakness of the economy. The media focuses on year-over-year data in part because NAR and CAR maintain that because of the seasonal aspects of real estate yearly trends are more significant than monthly or other trends. Consequently, we expect the annual numbers to be the focus of media coverage and that is very positive news despite the significant monthly drop in volume and the small drop in price.

The media typically uses data from public records that often combine condos/townhouses with single-family homes. Our data is based on MLS data, which allows separation of this data. We believe the MLS data is more reflective of actual real estate market conditions in part because related party transactions are excluded. Also, most of the media's data combines data for the 9-Counties that touch the Bay. Santa Clara County is being the hardest hit. Santa Clara often leads local trends. We believe it is important to look at each County separately to more accurately determine real estate market conditions because real estate remains a local investment.

San Mateo County's median Sold price decreased $50,000 from the record set in June and now sits at $761,000. There is no question that the appreciation has flattened and reversed directions.

Santa Cruz County is at $660,000. This beats SZC's previous record.

Monterey County's median Sold came in at $578,000 this beats MTY's previous record set in June. 

Although the data contained here is the most complete, factual and up-to-date monthly Silicon Valley Real Estate market conditions data widely available, Creekside Realty does distribute a weekly version to our clients. The weekly version contains additional data not included in this monthly report. The purpose of the weekly version is to let our clients know what the real estate market is doing now, not 90 days ago. The weekly version assists our clients in making more informed real estate decisions. Previous weekly updates may be reviewed here.

The comments expressed here are based on the overall market conditions for single-family homes as shown in the data displayed in the attached links. These general real estate market conditions will not apply to all price and geographic segments of a given market. This monthly analysis does not reflect the additional data in our weekly version that is available exclusively to Creekside Realty clients. If you are considering a sale or purchase you should get real estate market condition data for your specific situation. Creekside Realty can provide that data to those who are interested in becoming clients.

Data for 4-counties (San Mateo County, Santa Clara County, Santa Cruz County and Monterey County) is available via web links. By reviewing all these Counties you will get a more global understanding. The easiest way to accomplish this is to use the top left link "Graphs-house" and step through the 13 graphs. 

Readers are encouraged to read the introduction section until they are familiar with Bay Area Real Estate Market Newsletter. The introduction explains many of the unique features, lists frequently used abbreviations, and provides detailed explanations of the data that is used in the Bay Area Real Estate Market Newsletter. Your thoughts and/or comments about the real estate market conditions and/or Bay Area Real Estate Market Newsletter are always appreciated. Creekside Realty would like to assist you with your real estate needs; just email us.

Background

During the past 6-years of collecting and analyzing real estate data for Silicon Valley daily, weekly and monthly; it has become clear that adjusting a real estate purchase and/or sale by even a few months has become important in order to improve the investment aspect of your real estate holdings. It is equally important to know when to be conservative and when to be aggressive with your real estate pricing strategy.

Creekside Realty believes the old saying 'just buy and hold real estate for the long-term' can be improved significantly by adjusting the timing of your purchase and/or sale by just a couple of months. This is because the local real estate market has become volatile. There have been 4 peaks of about $570K and 3 valleys of about $500K since April 2000. Santa Clara County prices increased 17.2% in just 4 months early in 2002. Longer-term, prices increased 108% in 21 months and fell 43% in a different 21 months.

Since the MLS transition in July 2003 there have been numerous challenges. Unfortunately, we continue to question the accuracy of the MLS database, which is our source for our analysis. The most significant remaining issues are:

     1) DOM (days on the market): This use to be the length of time a property was published on the MLS. Currently, this data is based on the list date entered by the listing agent. This means that DOM can be reset to zero at any time by the listing agent by simply re-listing the same property and may have no relation to when the property went onto the MLS. As the market slows down more agents will re-list their properties. Therefore DOM will be low and not accurately reflect the degree of market slowing.

     2) Number of initiated Sales: This is still being significantly overstated. Previously, the sales date was the date the sales was first reported to the MLS. Currently, there are several events that cause this sales date to be over-written by a current date. If this happens to be in a subsequent month then the initiated sale will count in both the original AND the subsequent month. 

     3) Number of Closings: This is also being overstated, but to a much smaller degree. Sometimes the MLS fails to delete the original listing when an agent re-lists a property. The listing agent reports the sale and closing on both listings causing a double count. This also cause an over stating of the inventory when the listing prior to the offer being accepted. We have also found a listing that closed in November 2003 but was being reported by the MLS as also closing in May 2004. 

Fortunately, we believe that these errors are randomly distributed with respect to the price and therefore the median prices reported should be pretty accurate.