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

The median price was around $735,000 to $760,000 for most of 2005 and through March 2006. Then April, May and June 2006 set new record high median Sold prices of $775,000, $800,000 and $819,950. July and August saw decreases to $805,000 and now down to $770,000.

San Mateo County actually experienced year over year DEPRECIATION of -$24,000 in March and -$22,000 in April 2006. May and June reversed this pattern with a $5,000 year over year APPRECIATION to $905,000 followed by June with a $40,000 year over year APPRECIATION. June 2006 set a new all time record high of $940,000. July and August reversed this trend with a drop of $65,000 to $875,000 followed by August with a second drop of $25,000 to $850,000 for a year over year DEPRECIATION of -$40,000. August is the fourth monthly year over year DEPRECIATION experienced by San Mateo County since March 2006.

Normally, the San Mateo - Santa Clara County border tends to set local real estate market trends. However, the current trend seems to be approaching San Mateo - Santa Clara County border from the outlying areas opposed to propagate from San Mateo - Santa Clara County border.

Available inventory is 125% of the 8-year average. Sales volume improved slightly but remains dramatically low at only 86% of the 8-year average. The inventory and sales volume data are not adjusted for growth, so approximately 107% would be normal.  Days of Unsold Inventory is at 134% of the 8-year average. DUI is a ratio and therefore is self adjusting for growth.

The low volume of initiated sales at 1,161 is the third LOWEST since 1998, with only 2001 at 1,021 and 2002 at 1,091 being lower. San Mateo, Santa Cruz, and Monterey Counties ALL had fewer transactions in 2006 than in 2001 thus establishing new record lows. The condo market didn't do much better. SCC beat 2001 and essentially tied 2002. SMC beat 2001 and essentially tied 1999, 2000, and 2002. Santa Cruz and Monterey Counties  set new record low volumes. This is despite all the new condo/townhouse construction in the past decade.   

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 as there are both price and geographic based sub-markets. For example, the higher price range homes are in a buyer's market while the low price range homes are still in a seller's market. Additionally geographically, Mt View and Palo Alto both have only 42 Days of Unsold Inventory, which is a Seller's market. Santa Teresa, North Valley, Milpitas, Santa Clara, Central SJ, Blossom Valley, Cambrian, Campbell, Cupertino, and Sunnyvale have between 55 and 88 DUI, which we consider to be a balanced market. Other areas such as South County, Evergreen, East Valley, Willow Glen, South SJ, Almaden Valley, Los Gatos, Saratoga and Los Altos (including LAH) are slower with 90 to 206 days of unsold inventory, which we consider a buyer's market.

Inventory - SCC inventory remains less than 2001 and 2002 but more than other recent years. SMC inventory is less than only 2001. SZC has 50% more inventory than 2001 and Monterey has double the 2001 inventory. We have been collecting data since 1998. The complaints of low inventory have ceased and have been replaced with comments that "good" properties still sell quickly.

Median Days On the Market – This data has limited value because the DOM for some listings are reset to zero even after they have been on the market. Despite this handicap, this figure is about 50% higher than 1-year ago in SMC, 75% higher in SCC, 133% higher in SZC, and more than doubled in MTY. Days on Market is longer than any year other than 2001 with MTY even longer than 2001. Remember days on market tends to be a lagging indicator as it takes times for listings to age. The MLS will be improving the definition of Days on the Market later this Fall. Hopefully, this will improve the validity of the DOM data as an indicator by May 2007.

Median List Price – 769,999. This is down from the record of $800,000 set in May 2006. Seller's expectations tend to lag changes in the market. However, it is up $10,000 from July, and that is an indication that median Sold prices may be flat for September.

Number of initiated sales - only 2001 had fewer offers accepted in the month of August. This reduction in volume is remarkable considering that the second highest sales volume were reported just over 1-year ago. SCC went from near record high volume of sales to near record low volume of sales in one year. This indicates a slowing more significant than normal as many had been claiming late in 2005 and early 2006.

Sold Price - $770,000 This is down $35,000K from July, which was down $15,000 for June. SMC experienced a $25,000 drop from July, after a $65,000 drop from June. SMC is experiencing their fourth month of negative year over year 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 – 100.0% has been dropping from the peak in May 2005 of 104.1% through December's valley of only 99.9%. This ratio increased to 100.7% for March through June, but it has been dropping in July and August. This indicates buyers are being less aggressive in their overbidding. This is nothing like the overbidding during 2000 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 – 40.9%. This dropped from its 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 before decreasing the last 3 months. Currently 2 out of 5 sellers receive more than their asking price. Getting more than asking usually happens because of multiple offers. It appears that Buyers learned from 2000 and are 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 – 1,080 the low number of transactions remains our biggest concern. This was only better than 2001 and 2002. SCC has experienced the second lowest number of completed sales several times in recent months. 

Continued multi-year improvement in pricing indicates that real estate remains a good long-term investment. Real estate market prices that had 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 looking like 2006 will set another new level of $820,000. Even if the market is not able to maintain this new level and prices retreat to the 2005 level, the net increase in prices will remain positive.

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. However, with a $65,000 drop from June to July the annual appreciation for SMC went negative again at -$5,000. An additional $25,000 drop from July to August resulted in an annual depreciation of $40,000 or about 5%. July and August combine for at $90,000 or 10% drop in just 2 months.

Santa Cruz County experienced a $10,000 depreciation from July to August, which represents an $18,000 annually depreciation from August 2005. Volume of initiated sales was only 183 lower than the 192 back in 2001 and off significantly from the median of 240 initiated sales. Even more significant is the dramatic increase in days of unsold inventory to 208. This was only 80 last year and only 165 in 2001. DUI gained 26 days from June to July. This indicates rapidly deteriorating market conditions.

Monterey County's $675,000 median Sold price is off $35,000 from the $700,000 record set in February 2006 and off $15,000 from August 2005. This represents an annual price depreciation of about 2%. Days of unsold inventory is at 349, which is a new record high and double the DUI in 2001. One year ago, DUI for Monterey was only 86. Clearly, this is not good news for Monterey County.

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 also distributes a weekly version to our clients. The weekly version contains additional data not included in this monthly report. The weekly version provides our clients with the most current data available, letting our clients know what the real estate market is doing right now opposed to 90-days ago allowing our clients make 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 and will provide a comprehensive overview. Use the top left link "Graphs-house" and step through the 13 graphs.

Readers are encouraged to become familiar with the introduction section of the 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 are used. Your comments 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 is sometime important 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 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 even a couple of months. This is because the local real estate market has become volatile with significant price fluctuations. 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.