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

Executive Summary

The Bay Area real estate market continues to vary dramatically depending on the location and price. Not only just different areas of a SCC, but different areas within the same city. E.G. In Sunnyvale 94086 & 94087 are strong but 94085 & 94089 are weak. The current real estate market shows how localized real estate conditions can be. Generally, any property that has a negative is doing poorly while prime properties continue to do well. This negative could be as simple as further from jobs as $4/gallon gasoline arrives or affordable because of the current credit issues. Here is a graph that shows the differently the median price is doing in our different market areas within SCC. The different areas are:

   expensive - Saratoga, Los Gatos, Los Altos, Los Altos Hills, Palo Alto, Menlo Park & Atherton
   moderately expensive - Almaden Valley, Cupertino, Sunnyvale and Mt View
   moderate - Santa Teresa, Evergreen, Berryessa, Milpitas, Santa Clara, Willow Glen, Blossom Valley, Cambrian and Campbell
   affordable - Central, South and East San Jose
   South County - Morgan Hill, Gilroy and San Martin
   townhouse/condo - is for the moderate priced areas listed above.

MTY's median Sold price has dropped essentially 50% during the past 8-months. $799,500 in August 2007 to $405,000 in April 2008. MTY's median first reached this price level in March 2003. 4 1/2 - years of appreciation wiped out during the past 8-months. Unlike SCC there was a lot of building in MTY in recent years. 

SZC's median Sold price has dropped 25% since August 2007, $790,000 to $610,000 in January. SZC's median Sold price first reached this price in March 2004. Unlikely MTY which continues to slide, SZC rebounded and is currently at $683,500. That is a decline of $100K. 

SCC and SMC median sold price is also off $100K from the peak. SCC first reach this price level in March 2006 and SMC reach the current price level back in March 2005. Areas near the SCC & SMC border continue to set new record high pricing, while everything east of Lawrence Expressway is off significantly from their peak pricing. The ten percentile pricing (the more affordable homes) have lost 25% of their value in the past year in both SCC & SMC, while the median price is off 10% and their 90 percentile homes are essentially unchanged. This can be seen graphically with the expensive market areas in SCC still appreciating and the affordable areas off significantly. 

The real estate market within Santa Clara County has typically been fairly homogeneous. 2007 introduced the dramatic geographic and price splits. These splits have continued into 2008. The expensive communities (Palo Altos, Los Altos, 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. Both of these factors artificially increased the median prices. The affordable areas experienced their peak pricing in July 2006 and have fallen $185+K. South County's median Sold price has dropped $220K.

The volume of SFR transactions continues to improve significantly since mid-January. SCC has improved from 50% to 70% of the normal volume. Despite this significant improvement, only 2007 and 2001 had fewer transactions initiated. Because of the higher than normal rate of failed transactions and the length of escrows, the volume of closings in April is still setting a new record low. The condo/townhouse  market volume has not recovered and continues to set new record lows. The multi-unit marketplace appears to have particularly hard hit with closings in SCC being two-thirds of their previous low, 26 transaction in March 2008 compared with 34 transactions in April 2002. Our calculated TFT (transactions fallen through) rate spiked in January 2008 to 42%. This is actually a conservative calculation of failed escrow. 

Inventory in SCC is currently at 5,540 for SFR and 1,763 for condo/townhouse. Both record high levels. Inventory normally increase through mid-July. Expect more records to follow for the next several months. The rate of this increase in currently less than is typical. With the lower than normal sales, the most likely explanation is sellers are starting to not put their homes on the market. 

The large amount of supply coupled with the historically low 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, which is doing much better than either SCC or SMC as a whole. 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. 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. Much of this slow-down can be attributed to 94085 and 94089. The demand in 94086 and 94087 is still appears strong. 

There has been pretty dramatic improvements (reductions) in DUI (days of unsold inventory). Many SCC market areas have seen DUI cut in half. Despite this improvement, DUI in these areas remain significantly above 90. This our threshold of price appreciation. This would tend to indicate more price declines. The Mt View, Los Altos and Palo Alto area has only 46 DUI. Los Gatos and Saratoga with 112 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 at 132 DUI and North Valley, Milpitas, Santa Teresa and Blossom Valley have 141 DUI. We would consider both these regions to be Buyer's market. East Valley, Central San Jose and South San Jose have 245 DUI and South County is at 241, both extremely slow markets.

The hottest price range remains between $1.000,000 and $2,500,000 with only 103 DUI. Followed by: 
$750K - $1.0M @ 123; $600K to $750K @ 180; $450K to $600K @ 168; and $2.5M to $5.0M @ 200. Traditionally, the lower price ranges have the lower DUI.

Inventory - 5.540 All four counties are at their seasonal record high levels. SCC & SMC are at their all time high. This holds true for condo/townhouse is SCC. 

Median Days On the Market – 36 The previous record was 35 DOM set 2003. SMC at 34 is also setting a new seasonal high with their previous record being 21 in 2003 & 2001. DOM typically drops at this time of the year, because of the large influx of new listings following New Years.

Median List Price – $699,000. This is back to the February 2005 level and $162,000 lower than the record of $861,000 just set in August 2007.  This is $140,000 decrease from March 2007 and $11,000 below the March 2005 price level of $710,000. With the amount and frequency of overbidding flat, we would expect no increasing price pressure. But with the split market within SCC it is likely the hot areas will continue to see price appreciation and the cool areas will likely continue to see price depreciation. The 2007 price increase had 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 became significant in 2007 and their significance has continued into 2008. Consequently, median price has even less correlation with property values. This can be seen by viewing a graph of the market area median prices.

Number of initiated sales - 1,124 is the fewest number of initiated sales of any April since 1998 except 2007 with 1,017 and 2001 with 827 initiated sales.

Sold Price - $768,000 is $100K 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. At $768,000 the current County wide median Sold price is not significantly different than the $750,000 of April 2005. 

Average Sold Price to List Price ratio – 98.6%  Last year it was 100.8% and peaked of 101.2% in May 2007, decreasing monthly through January 2008 and has been essentially flat since February. We consider 98.5% normal.

Percent of completed sales with a Sold Price greater than the List Price – 26.8%. Currently, one out of every four sellers are receiving more than their asking price. This was 44.9% in April 2008.

Number of Completed Sales – 653 this is the lowest number of completed transactions for any April since 1998. The previous low was 682 back in 2001. Despite the increase in the number of offers accepted, which will translate into more completed sales next month, the low number of transactions remains our biggest concern. There appears to be significantly more failed transactions than normal. The market appears to be still adjusting the tighter credit conditions and Lenders are adding additional conditions right up until the closing.

The multi-year improvement in price indicates that real estate remains a good long-term investment. Much of the 2007 price increase was 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. It appears that 2008 will not set a new price point. 

SMC set a record high median Sold price of $1,026,282 in October 2007, dropped $104K to $922,500 for November 2007 followed by another $47K drop to only $875,000 in December. Although price have fluctuated some April is at $875,000. With only 346 transactions, volume is below any April since 1998 except for 2001 with 313. 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 $683,500, Santa Cruz County is below their April 2005 median Sold price of $715,000. With only 110 completed sales it was the worst April since 1998. April 2001 was the previous low with 133 transactions. As the number of transactions decreases the median price tends to fluctuate more. 

Monterey County's at $405,000 is down $395K (nearly half) from their record high of $799,500 set just eight months ago in August 2007. With 191 transactions volume is returning at these reduced prices. 

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 decade 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.