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

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Executive Summary

A homogeneous market is normal. Currently, there is both a price and geographic split in the market. Pricing is near record high levels doesn't tell the full story. Look at volume. SMC, SCC, SZC and MTY all had their fewest or second fewest number of transaction since 1998 with only 2001 having fewer transactions in SCC.

May 2007 saw price stabilization with only SZC setting new record high. March & April 2007 saw median Sold prices increase to new record high levels. The recent price jump in large part is because of a significant change in the mix of what is selling because of the sub-prime loan situation. Mt View, Los Altos, and Palo Alto normally represent 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. The affordable areas: South, Central and East San Jose dropped from 16% to only 11% of all transactions. Both these shifts forces the median Sold price to increase even without any appreciation.

In addition to the shift in the market mix, 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 SCC as a whole.

SCC inventory is 130% of the 8-year average. Sales volume remains dramatically low at only 76% 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 157% of the 8-year average is self adjusting for growth as it is the ratio of inventory to sales.

Both SCC and SMC, inventories are approaching record high levels. Still 2003 had more inventory. SZC and MTY are both currently setting new 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 that is still a Seller's market  with only 29 days of unsold inventory. Other areas such as Santa Clara, Willow Glen, Cambrian, Campbell, Los Gatos and Saratoga are slower with 70-94 days of unsold inventory, which we consider a balanced market. Areas such as North Valley, Milpitas, Blossom Valley, Evergreen have 125 to 150 DUI. Finally South County, East Valley, Central San Jose and South San Jose have 260-270 DUI or a strong buyer's market. This geographic based discrepancy is abnormal. 

Currently, the hottest price range is between $750,000 and $2,500,000 with only 79 Days of Unsold Inventory. Normally, the lower price ranges have the lower DUI.

Inventory - Inventory in SCC and SMC is greater than any year except 2003 since we started collecting data in 1998. Santa Cruz and Monterey Counties are setting record high levels of inventory.

Median Days On the Market – DOM is approaching the record long levels achieved in 2003. Remember days on market tends to be a lagging indicator as it takes times for listings to age. This data is starting to become meaningful again because the MLS retroactively corrected the data back to October 1, 2006. Listing agents can no longer reset the DOM to zero by re-listing the property. The property must now be off the market for more than 30-days. This returns to the definition in place prior to July 2003. 

Median List Price – $854,975. This is a $16,000 increase from last month and $116,000 increase from just December. This is another record high beating the previous record of $839,000 set in April 2007. Seller's expectations tend to lag changes in the market. With the amount of overbidding approaching 50% combined with the increase in Sales Price to List Price ratio we would expect some continued upward pressure on Sold Price. This 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.

Number of initiated sales - In SCC May 2007 surpassed May 2001 by only two transactions. Making any adjustment for growth during the past six years makes 2007 the record low volume since we started keeping detailed records in 1998. The reduction in volume is pretty amazing considering just 2-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. Most of this slow down actually occurred in late 2005 and early 2006 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.

Sold Price - $865,000 This essentially ties record of $868,406 just set in April 2007. Remember that this increase is caused by a shift in the market mix and the hot market localize in the northwest quadrant of SCC opposed to wide spread 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 – 101.2% This had reached 100.7% in June 2006, before decreasing each month to 98.9% in December 2006 before increasing since reaching the current level. 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 – 43.8%. 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 reaching the 2006 peak of 53.5% in May 2006. It had declined through November 2006 reaching 31.6% before increasing since November 2006 to reach 44.9% in April 2007. Currently, two out of every five 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 – 994 this is second lowest number of completed transactions for May only beating the 770 level back in 2001. 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. 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. 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. 2007 is currently setting another new level and with the jump in median List price it is likely this will increase again in June. Remember, part of the current increase is a result of the sub-prime loan issue disproportionately negatively impacting the low-end of the market.

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.

SMC set a record high median Sold price of $976,000 during April. May's median Sold price of $953,500 is essentially tied with last month's level. At only 432 transactions, volume is essential tied with the previous record low of 445 transaction, especially if accounting for growth during the past six years.

Santa Cruz County is also setting a new record high median Sold price of $790,000 but with only 153 transactions compared with 135 in 2001. If this data was adjusted for growth, 2007 would be essentially tied with the record low volume.

Monterey County's at $695,000 is down $70,000 from their record high of $765,000 set just last month, April 2007. With only 135 transactions significantly below the 154 transactions in 2001 since we don't adjust for growth. With 485 days of unsold inventory and record low volume, it is clear that this is not appreciation based, but instead caused by a shift in the market mix.

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.