An increase in the median. A 20% increase in housing inventory with a 17% drop in home sales would bring bad news for the Silicon Valley housing market. Simple economics says that a big increase in supply combined with a big decrease in demand means dramatically lower prices --- just ask anyone who tries to sell you a Mother's Day card on May 14th this year, right?
Between April 2006 and April 2007 in Santa Clara County, there was an increase in inventory of single-family homes from 3231 to 3900 and a decrease in single-family home sales from 1066 to 886. The numbers for townhomes and condos are even more dramatic with an increase in inventory from 1053 to 1436 (36%) and a decrease in home sales from 469 to 363 (27%). What happened to median home prices in Santa Clara County? Well...
Does that mean that a 12% year-over-year increase in median single-family home prices and a 10% increase in townhome and condominium prices in Santa Clara County are both undeserved?
In San Mateo County, the same thing happened with not nearly as much drama. Inventories were up in both single-family homes (1180 to 1348, an increase of 14%) and common interest developments (440 to 471, an increase of 7%). And home sales were down in both: 415 to 388 (6.5%) and 164 to 135 (17.7%), respectively.
The median price of condominiums and townhouses in San Mateo County was up 3.5%. It looks flat on the graph, especially compared to the way Silicon Valley real estate prices have gone over the years, but folks in a lot of markets would be pretty happy with that sort of price increase. The median for single-family homes in this part of Silicon Valley is up 8.4%.
So, what on earth is going on? It's a different story between Santa Clara County where I'm tracking a small anomaly and San Mateo County where there are signs of change relative to the frenzy of the past few years. What do the number of new listings have to do with it?
Stratification in Santa Clara?
No mincing words: desirable homes in Silicon Valley command premiums right now. I'm specifically using "Silicon Valley" as opposed to the "Bay Area" where we're seeing weakness in outlying areas.
On the average in Santa Clara County, single-family homes went for 4% over the list price. That's up 3.1% from the year before. What I point out to my clients about this stat is meaningful because it only applies to homes that have sold --- homes that sit don't have sales prices to drag down this number. It's a good indicator of the heat of the market for desirable homes. Homes that sell are bringing up the median.
But for my clients who are selling a home, I often remind them that just because the median home price is up doesn't necessarily mean that "my house, your house or (especially) the house across the street" is worth more than it was worth yesterday. It's important to note that I try to build such a relationship with my clients where I can be this blunt about things that are this important.
When it's this critical to my clients' happiness and financial security, I don't believe in beating around the bush. Marginal homes and below priced incorrectly just aren't selling right now; just look at the inventory and closed sales numbers between April 2006 and 2007 and contrast that with an increase in the median home sales price in Silicon Valley. Good homes priced incorrectly sell for less.
When You Can Sell Garbage as Easily as Bargains...
The desperation of looking at the rudder of a boat that set sail before you knew it was going somewhere. We saw that look, the mouse clicks on online trading sites buying anything associated with this Internet thing. The land grab that saw prices of "What were they thinking?" going for the price of "Meh." It's not that time.
On my time (versus visiting with a client), I visited a home in Santa Clara's patch of Silicon Valley that I thought could be a reasonable bargain with a little elbow grease. Obviously it's best-foot-forward on the MLS so you actually have to see these things for yourself.
The owner of this house --- actually a townhouse --- is a real estate agent. I go into places with an open mind looking for opportunities for my clients, but it's rarely good when you truly believe there's swampland on the other side of the door, just based on the smell. I lived in New Orleans for years and used to be an expert on the subject.
Contrast that with another townhome in the same complex, which sold for a little more just recently. Not pristine, but clean and well-kept. This is a surprisingly common pricing strategy (see The Price of the Home Across the Street and Its Long Shadow) which is becoming more and more obsolete.
Our poor townhouse has sat unsold and will continue ratcheting up it's days-on-market number until suitors aren't scared off by the asking price. That's the difference between the bubble and the stratification between properties that we have today.
Slight Weakness in San Mateo County
Pricing strength is holding steady for single-family homes in San Mateo County with a slight increase in the percent of list price sold for from 101.08% to 101.17% between April 2006 and April 2007. Condos there, however, dipped below 100% for the first time since 2003, going to 99.97% from 101.31% Statistically, that's pretty insignificant. Psychologically, it's important because that means most homes are selling at or below (trivially) the asking price.
Like in Santa Clara County, new listings in San Mateo County for the past few years are at 10-year lows contributing to the strength in median prices.