Bay Area Real Estate Market Newsletter ("BAREMN") as of December 5, 2007

Executive Summary

The news this month continues to be the lack of transactions. November's volume is lower than it was in September 2001, when the nation was stunned with 9/11. November 2007 has only about 2/3 of any previous November, back to 1998 when we started gathering data. November 2007 had the fewest completed sales (closings) of  any month not only since 1998, but appears that this record low volume goes back to 1984 when the MLS first started publishing statistics. 

A homogeneous market is normal. Currently, there remains both a dramatic price and geographic split in the market within SCC. Median pricing is near record high levels in large part because the expensive communities (Palo Altos, Los Altos, Mt View, Sunnyvale, Cupertino, Saratoga, Los Gatos and Almaden Valley) are doing well and at or near their record high prices. The affordable and out laying communities (East, Central, and South San Jose) are doing poorly. Each of these factors artificially increase the median prices.

Mt View, Los Altos, and Palo Alto normally represent about 10% of the transactions. In February these areas represented 9% of all SCC transactions. By the end of March this had nearly tripled to 25% of all SCC transactions. These expensive areas are currently 15% of the market. The affordable areas: South, Central and East San Jose dropped from 16% to only 11% of all transactions. This has decreased even further and in November is only 8.4% of the completed transactions. Although slowing moving back to more historical levels, both these market shifts cause the median Sold price to increase without any appreciation. This can also been seen with year over year appreciation in the median price but with year over year depreciation in the 10 percentile price level.

The demand for housing close to the SMC/SCC border remains high causing that area to appreciate. The San Mateo - Santa Clara County border tends to lead local real estate market trends. The current trend seems to be closing in on this border from the outlaying areas. This area is doing much better than either SCC or SMC as a whole. SMC's median price is fluctuating in large part is because of the reduced number of transactions. SMC has had four monthly swings of $100K since March 2007. This is a function of which specific homes close each month, not swings in property value 

SCC inventory is 191% of the 8-year average. Inventory, reached its peak of 4,925 on October 27, 2007. This was the highest absolute inventory level since 1998. It appears that many listings expired at the end of October. Through November 16, 2007 inventory had been fairly steady; at 4,767. Since mid-November, inventory has finally been decreasing but at a rate that is slower than normal. Seasonally adjusted inventory continues to climb, because of a slower than normal drop of inventory. Sales volume remains dramatically low at only 58% of the 8-year average. The inventory and sales volume data are not adjusted for growth, so approximately 107% would be normal for both. Days of Unsold Inventory is at 288% of the 8-year average is self adjusting for growth as it is the ratio of inventory to sales. SMC, SZC and MTY inventories also recently set their record high levels of inventory.

The decrease in demand coupled with the increase in supply has moved most of the region into what we consider a Buyer's market. The real estate market is not that simple. The notable exception is the area close to the SMC - SCC border. This area is experiencing a seller's market  with only 47 days of unsold inventory.  Los Gatos and Saratoga with 119 DUI which we consider a normal market for this market area. Other areas such as Santa Clara, Willow Glen, Cambrian and Campbell are slower with 143 days of unsold inventory and experiencing, a buyer's market. Areas such as North Valley, Milpitas, Blossom Valley have 292 DUI. South County is at 413. Finally East Valley, Central San Jose and South San Jose have 620 DUI or approaching 2-years of inventory. These last three market areas are experiencing strong buyer's market. Significant geographic based discrepancy that has been common in 2007 is abnormal based on our observations of the market dating back to 1998.

The hottest price range remains between $1.000,000 and $2,500,000 with only 135 Days of Unsold Inventory. Normally, the lower price ranges have the lower DUI.

Inventory - 4,529 Inventory has peaked at record levels in SMC, SCC, SZC and MTY. Inventory is currently decreasing because of the end of the year holidays.

Median Days On the Market – 55 is still shorter than the 63 for initiated sales in November 2001. SMC at 52 is only 1-day shorter than in November 2002. Both SZC and MTY median DOM for initiated sales is continuing to set record long periods at 90 and 133 for the month of November. Remember days on market tends to be a lagging indicator as it takes times for listings to age. Listings must now be off the market for more than 30-days to reset DOM to zero.

Median List Price – $799,000. This is now $62,000 lower than the record of $861,000 just set in August 2007.  This is still a $50,000 annual increase from November 2006. With the amount and frequency of overbidding decreasing, we would expect downward price pressure. The r2007 price increase has been helped by the shift in the market mix and the quickness of the high-end and the slowness of the low-end. Shifts in market mix have become significant in 2007 for the first time since 1998. Consequently, median price has even less correlation with property values. 

Number of initiated sales - 589 is the fewest number of transactions in any November since 1998 and only 49% of the 2004 volume and only 64% of last year's volume, which was the previous record low. The reduction in volume is pretty amazing considering just 3-years ago was the highest sales volume. SCC went from record high volume of sales to record low volume of sales in a short span. Much of this slow down actually occurred in late 2005 and early 2006 and again since June 2007. Even though prices continued upward through June 2006 and now again in 2007. As with the stock market, low volume minimizes the significance of the current price increases. This is raw count without making any adjustment for growth.

Sold Price - $858,000 is just $10K below the record of $868,406 set in April 2007. Remember that this increase was caused by a shift in the market mix and the hot market localize in the northwest quadrant of SCC opposed to wide spread appreciation. This can be seen with the 10 percentile pricing dropping $43K year over year, while the median (50 percentile pricing) is up $87K. Sold price tends to lag behind market changes and reflects market conditions 25 to 95 days ago.

Average Sold Price to List Price ratio – 98.9% This reached 100.7% in June 2006, before decreasing each month to 98.9% in December 2006. Then increasing each month to a peak of 101.2% in May 2007 before again decreasing monthly. 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 – 24.6%. This had declined through the summer of 2006 reaching 31.6% in November 2006. Then increasing from November 2006 through April 2007 reaching 44.9%. Frequency of overbidding had been dropping monthly, rebounded slightly in September before resuming its decline. Currently, one out of every four sellers are receiving more than their asking price. This typically happens because of multiple offers. Buyers learned from 2000 and appear 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 – 517 this is the lowest number of completed transactions for ANY month since 1998. The previous lows are September 2007 at 521, February 2001 at 571 and October 2007 at 572. The low number of transactions remains our biggest concern. The more this number drops, the more concern we become. Many months early in 2007 were the second lowest number of completed sales with only 2001 having fewer completed sales. Remember this does not take into consideration the growth in SCC.

Continued multi-year improvement in price indicates that real estate remains a good long-term investment. Remember much of the 2007 increase is due to shifts in the market mix. When looking at market area pricing, it is increasing in the expensive areas but actually decreasing in the affordable areas. 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 apparently 2006 set another new level of $820,000. 2007 is currently setting another new level of about $860,000.

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 SFR from condo/townhouse data. We believe the MLS data is more reflective of actual real estate market conditions in part because related party transactions are typically 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 and each market separately to more accurately determine real estate market conditions because real estate remains a local investment.

SMC that set another record high median Sold price of $1,026,282 for October 2007, dropped $104K to $922,500 for November 2007. At only 290 transactions, volume is at a new record low for Novembers since 1998. January and February 2001 had few transactions as did January & February 2006 and January & February 2007. The low number of transactions is allowing the median price to fluctuate $100K for the fourth time in 2007. 

At $715,000, Santa Cruz County is below both November 2006 and 2005.  With only 85 transactions it was the worst month since 1998. SZC's other low months were September 2007 at 87, January 2006 at 106, and October 2007 at 107. As the number of transactions decreases the median price fluctuates more. 

Monterey County's at $595,000 is down $205K from their record high of $799,500 set just three months ago in August 2007. With only 99 transactions this is the third lowest of month since September 1998 with September 2007 being lower at 88, October 2007 at 95 and April 2007 at 115 transactions. 

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 10-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.