The Schizophrenic Market in Silicon Valley
We have got microclimates! At a party I attended on Thursday evening, I heard of a listing in Palo Alto that got 47 offers. And I heard of one in Cupertino that got 16 offers. Both sold way over asking price, apparently. In parts of the valley, at certain price points, with certain types of locations, and especially in certain school districts, the market is completely on fire. It's a Deja Vu to 2000. But those cases are actually not the norm. Just like in any market, some homes don't sell at all. And now, there are more homes that aren't selling than a year ago.
What?
What is flying off the shelves:
Homes in the best school districts
New construction or homes entirely remodeled
Homes in the middle price ranges to entry price ranges for their area
Homes that are priced low relative to the competition (in the bottom third)
What is sitting, not selling:
Older homes (more than 20 or 30 years old) without extensive remodeling
Homes priced as if they were well remodeled, but aren't
Homes that are difficult to see (appt only, no lock box, seller who says "no" too much to showings)
Homes priced in the top third of their tier (so that most of their competition is priced less)
Sellers must understand that the market will not bear the prices from one year ago. Just like with the stock market, the housing market doesn't care what a seller might want or even need to get out of the house. Buyers are looking for the very best value for their money. Buyers keep hearing that prices will go down more before they come back up, so they are not going to pay more than they have to for a home. Folks who sell in this market need to be brutally honest with themselves about what their home is worth to a buyer - overpricing the property only means that it won't sell fast, and ultimately will sell for less.
Buyers, be quick. It may be a buyer's market, but that is for the average home. Most buyers don't want the average home - they want the "best deal", the "shiney penny" that everyone else will want. The very best homes are getting multiple offers (because there are not that many of them that are priced realistically). So don't dawdle! It may not be there on the weekend.
Bottomline: it's "All Or Nothing", both for the buyers and for the sellers. What a very, very bizarre market this is!!
How's the Silicon Valley market doing in terms of the numbers??
Alright, there are no easy answers. What is going on with prices?
Last year, prices dropped about 8% from April to September. Then they skidded along the floor for a few months, and then began to rise. They have not made up for the decline of 2006, but it's improving. At this moment in time, much of the valley appears to be selling at 4-5% below where it was selling exactly one year ago. I have read some reporters claim that prices are down 10% from the peak of last April - June, but I am not seeing that in my own practice. In fact, reporters sometimes look at the median home price and wrongly assume that it indicates actual value of properties. It does not! It only indicates at what price point the activity is happening. But yes, just the same, prices are down. They appear to be rising very slowly. That said, again some reporters are predicting that prices are going to fall this year. Others say they will rise in the second half of the year. Trying to figure out what is going to happen is a lot harder than figuring out what just did happen. So let's look at the now, and the before now.
A really good way of knowing is to take a look at the supply and how long it is lasting (as opposed to the days on market, which is a little skewed since some homes never sell, some sell fast, and it can't factor in the rate at which inventory is rising.)
The absorption rate tells us how long it would take for all the current inventory to sell off if nothing new came on the market. (Think of a bathtub. If no new water poured into the tub, how long would it take for the water currently there to drain out of the tub?) It is, I believe, the best indicator of the market that we have. So below please find the absorption rate of single family homes in Santa Clara County over the last few months:
(1) Single family homes months of inventory
(2) Condos and townhomes months of inventory
I looked at the absorption rate of January over the last 10 years and found that with single family homes, the average "months of inventory" was 2.97. Only one was higher than our current 4.33 and that was in 2003 when it hit 4.6 months. Of course, within 2 years that had completely reversed itself and in January of 2005 we had a very low rate of 1.84 months of inventory. In other words, this is a buying opportunity! If buyers wait too long, it will likely shift back into a Seller's Market.
The National Association of Realtors views a timeframe of under 6 months as still being a Seller's Market. Here, our market tends to move faster than the nation no matter what - but this is one indicator that if it IS a Buyer's Market, it's not a really strong one.
Another indicator is the percentage of list price received. Using this criteria, when it's at or over 100%, it's a Seller's Market, but under 100% it's a Buyer's Market.
% of List Price Received:
Jan 2007 98.34% Dec 2006 98.3% November 98.87% October 98.83% September 99% August 99.39% July 99.61% June 100.17% May 100.21% April 100.09% March 100.26% February 99.98% January 99.08%
So again, it is currently in the buyer's favor overall, but not by a lot!
And more importantly, your home and your neighborhood are not the "overall" picture, they are something specific and possibly very different. If you want to know how your home or your neighborhood in Santa Clara County is doing, call or email me and I can get you that data. Real estate is unique, and so is your home's value. Just like in other areas of life, sweeping generalizations are often wrong. Don't let the market pundits worry you, especially when they are reporting on the national real estate scene! Even if our market is down now, it will eventually come back. It always does!
