Bay Area Real Estate Market Newsletter ("BAREMN") as of December 5, 2006

Executive Summary

The median price was around $735,000 to $760,000 for much of 2005 through March 2006. April through June 2006 set new record high median Sold price of $775,000, $800,000 and June of $819,950. July saw a decrease to $805,000 followed by August at $770,000. September, October and November experienced price stabilization at $769000, $775,000 and $775,000 respectively. SCC has not yet seen year-over-year price declines.

San Mateo County actually saw year over year DEPRECIATION of -$24,000 in March and -$22,000 in April 2006 . May 2006 saw a $5,000 year over year APPRECIATION to $905,000. That was still $17,0000 below the all time record of April 2005. June 2006 San Mateo County set another new all time record high of $940,000. July 2006 saw a drop of $65,000 to $875,000, followed by 3 monthly drops in July to $875,000, August dropped to $850,000 and September dropped to $833,000. October saw a slight increase to $860,000. Despite this increase, SMC experienced it sixth monthly year over year price decline since March 2006. In November SMC experienced another increase to $881,599 for an annual appreciation of +$27K.

In SCC available inventory is 135% of the 8-year average. Sales volume remains dramatically low at only 87% of the 8-year average. The inventory and sales volume data is not adjusted for growth, so approximately 107% would be normal.  Days of Unsold Inventory is at 153% of the 8-year average and is self adjusting for growth as it is a ratio of inventory to sales.

The low sales volume has resulted in initiated sales being the LOWEST since 1998 (when we started gathering data) at only 918. San Mateo, Santa Cruz and Monterey Counties all experienced the second lowest volume with 2001 being lower. The condo market didn't do much better.

The decrease in demand coupled with the increase in supply has moved SCC into what we consider a Buyer's market. However, the real estate market is not that simple. The high price range continues to get slower. The lowest price ranges are in a  balanced market. There are also geographical areas that do better or worse than the overall market. Currently Palo Alto, Mt View, Sunnyvale, and Santa Clara are still in a Seller's market with only 37 to 46 days of unsold inventory. Other areas such as South County, Evergreen, East Valley, South San Jose, Los Gatos and Saratoga are slower with 116 to 158 days of unsold inventory and a buyer's market.

Inventory - Inventory remains greater than any good year and less than any bad years since we started collecting data in 1998. The complaints of no inventory have ceased and replaced with comments that "good" properties still sell quickly. Santa Cruz and Monterey Counties are setting record high levels of inventory. San Mateo and Santa Clara Counties are approaching record high levels.

Median Days On the Market – This data is still fairly useless because some listings are getting reset to zero even though they have not been off the market for 30-days. Even so, this figure is about 40% higher than 1-year ago in SMC, 60% higher in SCC, SZC, and MTY. Days on Market are longer than any year other than 2001 for SMC. In SCC 2001 and 2002 had longer DOM than 2006. SZC and MTY are both setting record high DOM in 2006. Remember days on market tends to be a lagging indicator as it takes times for listings to age. Remember, the MLS changed the definition of Days on the Market in July 2003 allowing agents to reset it to zero for a $25 fee. There is little question without that change DOM would be at record highs for all four Counties. 

Median List Price – 749,000. This is down from the record of $800,000 set in May 2006. Seller's expectations tend to lag changes in the market. With the amount of overbidding approaching 30% combined with the decrease in Sales Price to List Price ratio we would expect some slight downward pressure on Sold Price. 

Number of initiated sales - November 2006 had fewer offers accepted than any previous year back to 1998 when we started collecting data. This reduction in volume is pretty amazing considering just 18 months ago was the highest sales volume. SCC went from record high volume of sales to record low volume of sales in 1.5 years. Finally everyone is starting to recognize the real estate market is no longer the pillar holding up the economy. We still maintain that most of this slow down actually occurred in late 2005 and early 2006 even though prices continued upward through June.

Sold Price - $775,000 This is down $45K from June. SCC has not yet experienced a year-over-year price decline. SMC saw a $107K drop but then recovered $27K in October and another $21K increase in November for a net drop of $59K. SMC is experienced six monthly year over year negative appreciation since March 2006. November broke this pattern with a $27K annual appreciation. Sold price tends to lag behind market changes and reflects market conditions 25 to 95 days ago.

Average Sold Price to List Price ratio – 99.3% has been dropping from last year's peak in May 2005 of 104.1% through December's valley of only 99.9%. It then increased to 100.7% for March through June. This would indicate buyers were being more aggressive in their over bidding but still less aggressive than 2005. This is nothing like the strength of the improvement seen during good years when it reached 110%. 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 be 100%.

Percent of completed sales with a Sold Price greater than the List Price – 31.3%. This dropped from it's all time peak of 75.2% in April 2005 (surpassing the 2000 record of 74.8%) to a low of 44.2% in January 2006 before increasing again reaching a peak of 53.5% in May 2006. It has been declining since then. Currently less than one in three sellers are receiving more than their asking price. Getting more than asking usually happens because of multiple offers. It appears that Buyers learned from 2000 and were more comfortable paying above the asking price but are more conservative in the amount of over bidding compared to April 2000.

Number of Completed Sales – 870 the low number of transactions remains our biggest concern. Many recent months have had the second lowest number of completed sales with only 2001 having fewer completed sales. November 2006 is the third year by 14 properties. Considering that November 2001 completed Sales were directly impacted by 9/11 this is significant not to mention the weak 2001 economy also.

Continued multi-year improvement in price indicates that real estate remains a good long-term investment. Real estate market prices that have been flat for several years (April 2000 through February 2004) clearly reached a new level in 2004 of about $635,000 and another new level in 2005 of about $750,000. It is now apparently 2006 set another new level of $820,000 before retreating.

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. Because the media uses public records a lot of the most expensive transactions are not counted as the transfer tax is recorded on the back of the grant deed. The media frequently combines data for the 9-Counties that touch the Bay. Although Santa Clara / San Mateo border often leads local trends, the current market trends seems to being influenced by the slow-down in the outlaying areas and collapsing back onto the San Mateo/Santa Clara County border. 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.

In June, San Mateo County's median Sold price increased to $940,000 setting a new record for the first time since April 2005 when it was $922,000. This recovery was enough to change the negative annual appreciation SMC experienced in March and April 2006 and make it positive for May and June. But the annual appreciation for SMC went negative again in July through October combined with low volume of completed sales. November saw annual appreciation of $27K but only 13 more closing (completed sales) in 2006 than 2001 which was directly impacted by 9/11.

Santa Cruz County experienced a year-over-year price decline of $70K.

Monterey County's at $650,000 the median Sold price is off the $700,000 record set in February 2006 and off $15K from November 2005. This represents an annual price depreciation of about 2%. Days of unsold inventory is 325. That is down from the record high of 349 set in August but still significantly higher (slower market) than November 2005 when it was only 191.

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 December 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.