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

DRAFT  Changes in Data  DRAFT

Changes mentioned here don't impact the data in this report. The data in this report can no longer use REIL's data as a double check. The data in this report has been collected by Creekside Realty in the same historical manner. We have no reason to believe that there is any errors in the data presented here. However, that possibility is higher now without the ability to verify our data.

JULY DATA
REIL's data no longer matches the number of transactions on the MLS. SCC is under reported by about 10% of the transactions making the worst July since we collected data (1998) appear even worse than it was. Other counties the number of transactions is overstated.

REIL has returned to a weighted average for the SP to LP ratio. However, using the data published by REIL and MS Excel to calculate the weighted average yields results that are still off slightly from REIL's published data. 

REIL appears to have collected the data mid-day on the sixth opposed to their historical practice of early on the fifth. 

JUNE DATA
Historically, the local MLS (REIL) took the data from the real-time database very early in the morning of the fifth day of the month. REIL has decided to make the data real-time. Each time someone asks for the data they will get different numbers depending on the changes made to the real-time database. We will continue to obtain the data only once and at the same time for consistency, which is very important when looking as statistical trends.

Additionally, REIL has changed from a weighted average to a straight mean for days on the market. This creates issues when there are large cities like San Jose as well as small ones like Los Altos Hills.

Lastly, when a real estate market area has completed sales REIL is reporting the Sold price to List price ratio as zero. Then using this on a straight mean. This resulted in the SP to LP ratio for SFR in MTY to be reported as 59%, which is far from the reality of the true 96.4%.

Consequently, the data here will no longer agree with REIL's data even when it has in the past.
 

Executive Summary

A homogeneous market is normal. Currently, there is both a dramatic price and geographic split in the market within SCC. Pricing is near record high levels but, doesn't tell the full story. Look at volume. SMC, SCC and MTY all had their fewest number of SFR closed and/or initiated transaction since 1998. the one exception was SZC had 177 initiated sales compared with 172 initiated sales in July 2006. 

For the most part, July 2007 saw additional price stabilization. SMC set a new record high median Sold price in June of $1,011,000. Yes, breaking $1.0 Million for the first time ever. 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.

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.

SCC inventory is 138% of the 8-year average. Inventory, resumed its climb reaching 4,245. This is the highest level since 1998 except May 14, 2001 through June 30, 2001. Sales volume remains dramatically low at only 75% 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 171% of the 8-year average is self adjusting for growth as it is the ratio of inventory to sales. SMC and SZC inventories are also approaching their record highs. MTY inventory is currently setting new record high level and continuing to grow.

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 and Campbell are slower with 89 days of unsold inventory,  Los Gatos and Saratoga with 102 DUI which we consider a balanced market. Areas such as North Valley, Milpitas, Blossom Valley have 147 DUI. Finally South County is at 255. Finally East Valley, Central San Jose and South San Jose have 402 DUI. These last three market areas are experiencing strong buyer's market. This geographic based discrepancy is abnormal based on our observations of the market dating back to 1998. 

Currently, the hottest price range is between $750,000 and $2,500,000 with only 97 Days of Unsold Inventory. Normally, the lower price ranges have the lower DUI.

Inventory - Inventory in SCC is greater than any year since 1998 except May 14 through June 30, 2001. Monterey Counties is setting record high levels of inventory. SMC & SZC are near their record high levels. 

Median Days On the Market – are at record long levels for listings still on the market. 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 – $829,000. This is only $25,000 lower than May 2007.  This is a $75,000 increase from July 2006. With the amount and frequency of overbidding decreasing, we would expect some price decreases. The recent 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 - 918 is the fewest number of transactions since 1998 and only 55% of the 2004 volume. This is without making any adjustment for growth. Clearly this makes 2007 the record low volume since we started keeping detailed records in September 1998. 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. 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 - $856,500 This essentially still ties the record of $868,406 just set in April 2007. Remember that the 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 $23,000 year over year. Sold price tends to lag behind market changes and reflects market conditions 25 to 95 days ago.

Average Sold Price to List Price ratio – 100.6% This had reached 100.7% in June 2006, before decreasing each month to 98.9% in December 2006 before increasing each month to a peak of 101.2% in May 2007. 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 – 37.6%. This had declined through the summer of 2006 reaching 31.6% in November 2006. Then increasing from November 2006 through April 2007 to reach 44.9%. Frequency of overbidding was been dropping each of the past 3 months. Currently, nearly 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 – 878 this is lowest number of completed transactions for July since 1998. 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 of $865,000. Remember, a significant 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 $1,011,000 during July. At only 386 transactions, volume is at a new record low since 1998, especially if accounting for growth during the past six years.

At $780,000, Santa Cruz County is almost to their record high median Sold price of $789,500 set November 2005. But with only 143 transactions it was the worst year since 1988.

Monterey County's at $685,000 is down $80,000 from their record high of $765,000 set just in April 2007. With only 141 transactions, which is significantly below the previous low of 151 transactions in 2001. We don't adjust for growth. With 485 days of unsold inventory and record low volume, it is clear that the real estate market is not healthy. 

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.