February 10, 2004 Weekly Bay Area Real Estate Market Newsletter

Using a 5-year average (graph) as a norm,

Viewing the sales volume raw data is eye opening.

With the New Year the 2004 to 1999 comparison changes to the 2005 to 2000 comparison. When looking at the comparison to the 2000 graphic, which seemed logical as the real estate market conditions were similar and the identical calendar, it is apparent that something is different. Sales are dropping and then increasing, but on a gradual decline trend. Notice the sharp drop in sales starting January 12th. More noticeable is the increasing inventory relative to 2000. The increasing inventory combined with the decreasing sales is causing the most important indicator Days of Unsold Inventory to climb rapidly. If the DUI continues to climb, the market will eventually slow. The departure that started November 12, 2004 is even more striking when noticing how constant the comparison had been for early 2004. 

Because people remember last year the best here is a comparison between 2005 to 2004.

Remember, real estate is a great long-term investment. With the current behavior in the SCC real estate market statistics, we would recommend rational normal behavior, making plans for long-term and not the short term gains. Consider accelerating your planned purchases while watching the market carefully if you need to sell. Next week's analysis should be more definitive as we get further away from the holidays.

This weekly analysis is based on the overall real estate market conditions of single family homes in Santa Clara County. If you are considering selling or buying, it is important to evaluate specific real estate market data for your individual transaction based on price range, geographic area, and type of real estate you are purchasing or selling. Just contact us for this customized information.

Inventory – 

Days of Unsold Inventory – 

Median List Price -

Number of initiated Sales per day –

Percentage of normal sales initiated –

Median Sold price – 

Average Sold price to List price ratio – 101.8%

Percentage of completed Sales where Sold price is greater than List price –

Median DOM for completed sales –

Recent Notes - To allow for better printing of tables we have dropped the fifth week back. This issue you will see the last 4 weeks and the 8th week back.

We had been assuming that with the 2004 calendar matching 1999 starting on March 1st (because of leap-year) combined with similarity of the real estate market conditions that comparing 2004 to 1999 would be valid. This was the case from Fall 2003 through early November 2004, even with the calendars out of synch by 1-day prior to Feb 29th. Recently, discrepancies begun to emerge making it difficult to understand the market's behavior. Comparing the current 2004/05 data (inventory, sales & DUI) with each of the past 6 years individually (back to Sept 15, 1998) lots of differences emerge. Consequently, we wanted to establish a longer-term norm, like the 10-year average for sales volume. After additional research, we were able to develop was a 5-year average

Some NEW DATA: appears in the last row under initiated sales and closed sales. For example, 1643/3.49/2.20 appears in the last row of the SCC table under the 1/6/04 column. 1643 is the Median square footage for the properties that make up this data. The 3.49 is the Average (mean) number of bedrooms and the 2.20 is the Average (mean) number of bathrooms. The mean is being used for the bedrooms and bathrooms to show change as the median would almost always be 3/2. This will allow us to observe if there are large shifts in the market place that are attributing to price changes. If more larger homes sell the median SF will increase. This will also allow you to understand some of the differences between different areas. It appears that not only is SMC more expensive but the square footage is also less.

As you read current Newsletter it is particularly important to remember that just before a holiday DUI is artificially decreased. This is because the Sellers tend to pull out of the market first. Then the Buyer's will pull out of the market at the holiday causing DUI to spike. The bigger the holiday the bigger the impact. Thanksgiving is followed closely by other holidays and the accumulative impact is always significant. This will be true until after January 18th.

In doing this additional research, we expanded the our spreadsheet from 100 columns to 150 columns. This allows us to visualize the data in additional ways. In the process of doing this, we discovered something with the spreadsheet that we cannot explain. Back in mid-September we developed a macro to speed data input and minimize any errors. This macro worked until November 30, 2004, when for some reason 4-columns (F, AA, AE, & AI) were not advanced by one day but were rolled back 12 days. All other 96 columns were advanced properly. Subsequently, all columns were advanced daily as they should. This left these four columns out of synch by 12 days. The table was 100 columns wide and the macro copies the entire row, how or why these 4 columns were treated differently then the other 96 for just one day is something we don't understand. To minimize this from occurring again, we will periodically view the spreadsheet in the formula mode opposed to just the data display. This discrepancy increased the number of sales in the 10-year average subsequent to November 30th. Sales volume is also used in the calculation of our 90-day market indicator. The funny part is the unusually behavior we noticed was not associated with November 30th. However, this abnormality appears to be the cause of the third drop that we reported December 23rd. Using the correct information, this actually turned into a rebound.

We will increase this 5-year norm as more historical data becomes available. Eventually, we hope to transition to a 10-year moving average for all data. Unlike with sales data, there is no way to retroactively collect inventory data. Without inventory data DUI data is not available. We believe that by using a 5-year average in the interim our analysis will not be subject to temporary shifts in the data that we have seen recently when comparing the current data to just one year. 

We have converted the basis of the percentage of sales to the 10-year average from a fixed 10-year time period (July 1, 1992 through June 30, 2001) to a moving 10-year time period. This is to help minimize the impact of long-term growth in SCC. It still does not adjust for any growth during the past 10-years. Because the volume of transactions during the years added (2002-2004) to the 10-year moving average experienced more transactions than the years dropped (1992-1994) from the 10-year average there was about a 20 point decline in the percentages compared with what appeared in previous newsletters as a result of changing to a moving 10-year norm. But we have replaced all percentage of sales data in this and future Newsletters to the 10-year moving average even if it is for a previous period. This way the data will be consistent within any given Newsletter. However, if you re-visit a old Newsletter and try to compare that information to a current newsletter (with the moving 10-year average) you will need to make this adjustment.

Additional background information