Bay Area Real Estate Market Newsletter ("BAREMN") as of January 5, 2008

Executive Summary

December 2007 had only 488 completed sales (closings) in SCC. That is the fewest of any month not only since 1998; but all the way back to 1984, when the MLS first started publishing statistics. Lower than September 2001, when the nation was stunned with 9/11. December 2007 is only 60% or less of any previous December, back to 1998 when we started gathering data. 

Inventory, reached its peak of 4,925 on October 27, 2007. This was the highest level of inventory since 1998 and is 206% of the 8-year average. More listings than normal expired at the end of October. Then thru mid-November 2007 inventory was fairly steady; at 4,767. Since mid-November, inventory has been decreasing at a rate that is slower than normal, causing the seasonally adjusted inventory to climb. More listings than typical expired at the end of the year, resulting in a greater than normal decrease in inventory at year's end. We believe that inventory will likely begin to increase more rapidly than normal in the near future.

Sales volume has actually improved slight more than normal, causing an increase from 51% to 59% of the 8 years average. Even with this improvement, sales volume remains dramatically reduced at only 59% of the 8-year average. 

DUI of SCC is 287. This is 303% of the 8-year average. For comparison, DUI peaked at 154 following 9/11. Because DUI is the ratio of inventory to sales. it is self adjusting for growth.

The increase in supply  coupled with the decrease in demand has moved much of SCC into what we consider a Buyer's market. The notable exception is the area close to the SMC - SCC border. The demand for housing close to the SMC/SCC border remains strong causing that area to appreciate. The San Mateo - Santa Clara County border tends to lead local real estate market trends. This area is doing much better than either SCC or SMC as a whole. The current trend seems to be closing in on this border from the outlaying areas. The Cupertino/Sunnyvale area finally had a significant slowing since Thanksgiving, with DUI going from 44 to 107.

Since 1998, the real estate market within Santa Clara County has normally been fairly homogeneous. 2007 has seen dramatic geographic and price splits. The expensive communities (Palo Altos, Los Altos, Mt View, Sunnyvale, Cupertino, Saratoga, Los Gatos and Almaden Valley) are doing well and are at or near their record high prices. The affordable and out laying communities (East, Central, and South San Jose) are doing poorly. These factors artificially increased the median prices.

The Mt View, Los Altos and Palo Alto area has only 65 DUI. Los Gatos and Saratoga with 115 DUI. We would consider both of these regions to be a Seller's market. Other areas such as Santa Clara, Willow Glen, Cambrian and Campbell are slower with 160 DUI and North Valley, Milpitas, Blossom Valley have 290 DUI. We would consider both these regions to be Buyer's market. East Valley, Central San Jose and South San Jose have 705 DUI and South County is at 754 both extremely slow markets.

The hottest price range remains between $1.000,000 and $2,500,000 with only 168 DUI. Normally, the lower price ranges have the lower DUI.

Changes in the market mix have also been issues in 2007. Mt View, Los Altos, and Palo Alto normally represent about 10% of SCC 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 December 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.

Inventory - 4,031 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 – 58 is still shorter than the 63 for initiated sales in December 2001. SMC at 63 is 4-days longer than in December 2001. 

Median List Price – $749,919. This is now $112,000 lower than the record of $861,000 just set in August 2007.  This is only $11,000 annual increase from December 2006. With the amount and frequency of overbidding decreasing, we would expect downward price pressure. The 2007 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 - 450 is the fewest number of initiated sales of any December since 1998 and only 49% of the 2004 volume and only 64% of last year's volume and 73% of December 2000, 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.

Sold Price - $799,000 is $69K below the record of $868,406 set in April 2007. Much of the increase to $868,406 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. Expect another significant drop in January as December's median List price of initiated sales dropped another $50,000.

Average Sold Price to List Price ratio – 98.3%Last year it was 98.9% before increasing each month to a peak of 101.2% in May 2007. Before decreasing monthly since May 2007. We consider 98.5% normal

Percent of completed sales with a Sold Price greater than the List Price – 21.5%. This increasing from 31.6% in 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 five sellers are receiving more than their asking price. Consumers 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 – 488 this is the lowest number of completed transactions for ANY month since 1998. The previous lows are November 2007 at 517, September 2007 at 521, February 2001 at 571 and October 2007 at 572. The low number of transactions remains our biggest concern. Many months early in 2007 were the second lowest number of completed sales with only 2001 having fewer completed sales.

The multi-year improvement in price indicates that real estate remains a good long-term investment. 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 new levels: 2004 about $635K,
2005 about $750K, 2006 about $820K, and 2007 about $860K.

SMC that set another record high median Sold price of $1,026,282 for October 2007, dropped $104K to $922,500 for November 2007 followed by another $47K drop to only $875,000. At only 248 transactions, volume is at a new record low for any month since 1998. 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.

At $729,000, Santa Cruz County is below December 2005 median Sold price of $742,000.With only 76 transactions it was the worst month since 1998. SZC's other low months were September 2007 at 87, November 2007 at 99, January 2006 at 106, and October 2007 at 107. As the number of transactions decreases the median price fluctuates more. 

Monterey County's at $589,450 is down $210K from their record high of $799,500 set just four months ago in August 2007. With only 100 transactions this is the fifth lowest of month since September 1998 with September 2007 being lower at 88, October 2007 at 95, November 2007 at 99, and April 2007 at 115 transactions. 

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.

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.