June 2020 South Bay / Peninsula Real Estate Market Update

Welcome to our June newsletter. This month, we’ll continue to update you with important information about your local real estate market. First, we will cover new survey data from the California Association of Realtors (CAR) that shows buyers and sellers are operating under differing expectations about the real estate market. Following that, we will review the local market. Although 2020 is proving to be unique, we hope to provide you with an encouraging analysis of May’s housing data as well as an overview of our expectations moving forward as we phase out of the strict stay-at-home orders. 

This month’s topics include:

• Key News and Trends Impacting Your Local Market: The June CAR survey reveals a rift between buyer and seller expectations. Median home prices remain resilient. Sellers are more hesitant to enter or remain in the market, while buyer demand gets a lift and mortgage applications rise.

• May Housing Market Update: Housing inventory plateaus, single-family homes and condos continue to sell close to list price, and homes under contract climb.

---

Key News and Trends Impacting Your Local Market

Since most California counties are beginning to lift restrictions, we will start to see the housing market steadily recover. Although an exact end date to quarantine does not exist, on May 20th, Governor Newsom confirmed that more than half of the state’s 58 counties were moving into phase two of the widely adopted “four-pronged approach.”

On June 3rd, the California Association of Realtors (CAR) released survey data sampling California agents and their clients over the last week of May. The results revealed that buyers and sellers are now operating under very different expectations about the real estate market: the majority of buyers expect home prices to be lower while only a small number of sellers are reducing their listing prices.

In the long run, who is right will depend on how long the economic recovery takes. In the short term, however, the data tells us that single-family home buyers, at least, appear to have wishful thinking.

Silicon Valley median home prices did not decline enough for sellers to cut the listing price. In May, single-family home prices in San Mateo and Santa Cruz were only down slightly compared to the previous year while prices were higher in Santa Clara.

Compared monthly, prices did decline, most notably for Santa Cruz homes and San Mateo condos. However, monthly price movements, which are more volatile and often don’t capture as accurate a picture as year-over-year comparisons, will require sustained declines before homeowners should start pricing their homes materially below comparables.

Weighing in on the subject in his June 3rd market update, Jordan Levine, Deputy Chief Economist at CAR, said:

“We [now] expect some price impacts eventually as a result of some of the negative economic impact. . . . The price impacts will be in the modest category of the low single digits for 2020.”

Evidence supports the idea that price declines will only be in the low single digits for the 2020 calendar year. The market continues to see a larger sell-side impact, meaning that housing supply has declined more than buyer demand. The survey data below shows that far more sellers withdrew listings than buyers withdrew offers.

While sellers continue to grapple with the state of the market, California is again facing a major housing shortage, which prevents prices from dropping. The CAR survey also provided the most recent mortgage application data for both California and the United States. In May, California mortgage applications for home purchases (as opposed to refinances) rose significantly from April and are only down 1.7% from this time last year. Mortgage applications correlate with buyer intent to purchase a property and indicate the number of homes under contract and home sold.

All of this is welcome news. The May data assures homeowners that their home equity is still intact as restrictions begin to lift. It should also encourage buyers who may have been delaying a home purchase to enter the market.

A fourth CAR survey result illustrates the degree to which both supply and demand is currently stagnating. Over half of the California realtors surveyed indicated that they had at least one client that was delaying buying or selling until conditions changed. We assume that this pent-up demand will give way in the coming months to more participation and market activity from both sides.

Alongside pent-up demand, there are the changes to daily living which may impact home purchasing decisions in the future. In order to ensure employee safety, companies have massively shifted toward a remote workforce, which creates new space requirements for potentially millions of Americans. As a result, millions of Americans may need to consider purchasing a new home that better accommodates work from home. Remote work also means employees can live almost anywhere. Without physical restrictions, employees may look elsewhere for places to live such as locations with lower costs of living. Between new housing requirements, low rates, and pent-up activity, there is potential for a busy summer buying season that is similar to what we usually see in the spring.

---

May Housing Market Update for Silicon Valley

Over the last three months, the housing market has changed so rapidly that we began to look at the data on a weekly basis rather than a month monthly basis (as is typical) to illustrate how significantly the market has changed over a shorter timeline. 

In the month of May, the weekly Silicon Valley housing data for single-family homes supported the survey data from CAR. First, housing inventory has hit a plateau after a steady climb from the March trough as sellers continue to hesitate entering the market.

The plateau in inventory is also due to an increase in buyer demand; homes under contract have increased steadily since the phased reopening of the economy began. They have risen well past pre-pandemic levels in early March. 

The sale-to-list ratio reflects the change in the original list price and the final sale price of a home. For example, a ratio of 100% means that a home sold for the price at which it was most recently listed. In the Silicon Valley, sale-to-list prices have been consistent; buyers and sellers are negotiating the final sale price in line with the list price.

We also look at months supply of inventory, which measures how many months it would take for all current listings on the market (including listings under contract) to sell at the current rate of sales. In May, the months supply for single-family homes rose. This may seem counterintuitive to the weekly data above (which shows less inventory and more homes under contract), but remember that months supply compares inventory to sales. Low sales volumes recorded in May are the result of the low volume of homes under contract in late March and early April; said another way, homes under contract turn into sales around 30 days later. Expect recorded sales volume to increase in June and months supply to decrease. San Mateo stayed relatively flat from April to May because sales and inventory increased at a similar rate.

In May, sales volumes were only slightly down from the previous year in Santa Clara and Santa Cruz, rebounding from April lows. In San Mateo, sales were up by 20%. This shows how rapidly the housing market is recovering.

As we discussed in previous newsletters, the fundamentals of the housing market were strong before the global economy stalled, and they have continued to show stability during the months of quarantine.

Looking ahead to July, we anticipate housing market activity to increase as pent-up demand turns into participation from both sides. We will closely monitor the evolving state of the market to make sure that our clients are pricing and negotiating to get the most value out of their transactions.

San Mateo County Real Estate Market Update - First Quarter 2014

Here's an update on the San Mateo County real estate market for the first quarter of 2014. This single family home comparison is organized by school district with API score, including the median price, average $/sf, average days on market, and changes from the first quarter in 2013 and 2007.

Hope this provides some helpful insight as a buyer or seller.  

View fullsize

View fullsize

View fullsize

Palo Alto Market Analysis – May 2010 to May 2012

Palo-Alto-MSI-may2012

Palo Alto is a strong market which feels the ebbs and flows of the fickle real estate market less than both its more expensive and less expensive counterparts.  Palo Alto should be considered a seller’s market with a rapid turnover of its inventory with DOM averaging between 10-20 days for the last four months, and not over 50 days since March 2011.  The median price has been on a steady increase for the better part of the last year, and the sales absorption rate has been following the same trend.  Historically, Palo Alto has been a very desirable place to live and will continue to be one of the most consistent investments in all of the Bay Area for the foreseeable future.  All the market data should continue its upward trend and only time will tell how high it will go.

The MSI and DOM for Palo Alto are shown on the chart above.  The DOM has seen a mostly downward trend since May 2010 without large cyclical changes.  For the most part, the level of inventory has been decreasing since May 2010 with a slight uptick in the last couple of months.  Inventory supply is currently sitting at just over one month.

Palo-Alto-SA-may2012

From May 2010 to May 2012, the sales absorption rate has been steadily increasing.  In May 2012, the current sales absorption rate was 43.5% of properties under contract and 39.0% of properties sold.

Palo-Alto-median-may2012

Palo Alto’s median price only dipped slightly in late 2010/early 2011, then saw an early start to its upswing in July 2011 as opposed to the September 2011 upswing start in the Mountain View, Los Altos, and Los Altos Hills.  As far as price, Palo Alto’s continuing median price increase is the most consistent of Mountain View, Los Altos, and Los Altos Hills ending in May 2012 at $1,654,500.

Los Altos Hills Market Analysis – May 2010 to May 2012

Los-Altos-Hills-MSI-may2012

The Los Altos Hills market mimics the Mountain View, Los Altos, and Palo Alto with regards to median price only.  Its market data of MSI, DOM, and sales absorption are different than the other markets due to its extremely high price range driven by its premier location and exclusive homes.  Like other Bay Area markets, Los Altos Hills should continue its upward trends, though it will probably be one of the first markets to feel the effects if trends begin to change again.

Due to its higher median price range of $2,376,000, the inventory levels of Los Altos Hills fall into that of a more balanced market, and even at times a buyer’s market.  The May 2012 level of inventory is currently sitting at 2.5 months which is a drop of almost five months from April 2012.  The DOM for Los Altos Hills is not cyclical like Mountain View or even Los Altos due to the extremely high price range and more exclusive properties.

Los-Altos-Hills-SA-May2012

 The chart above reveals that the sales absorption rate for Los Altos Hills was unsteady between May 2010 and May 2012.  The fluctuations such as this are to be expected at this more exclusive price range.  In May 2012, the current sales absorption rate was 27.3% of properties under contract and 10.4% of properties sold.

Los-Altos-Hills-median-may2012

The median sales price line for Los Altos Hills more closely follows the line of Mountain View with a slight uptick in late 2010 and a dip until September 2011.  At that point, the uptick pace for Los Altos Hills more closely follows the pace of Los Altos.

Los Altos Market Analysis – May 2010 to May 2012

As shown in the charts shown below, Los Altos is a highly desirable city with a strong market and high median price range.  While it does border into a balanced market occasionally, Los Alto is to be considered predominantly a seller’s market.  Given its average median price range just under $1.6 million, it is surprising that the average DOM is under 30 days and the inventory supply is just about 1 month.  With the consistent upward trend in sales absorption and median price since September 2011, we can expect Los Altos to maintain its status as a desirable place to live and will most likely see prices continue their upward trend.

Los-Altos-MSI-May-2012

The chart shown above graphs the MSI as well as the DOM for Los Altos.  The chart indicates greater fluctuation in DOM statistics when compared with those of the Mountain View market though Los Alto does still follow the seasonal real estate cycles.  Currently, the DOM is between 20 and 30 days, and the level of inventory is currently sitting at just over one month.

Los-Altos-SA-May-2012

As with MSI, the sales absorption rate has also been fluctuating a bit more when compared to Mountain View though it has been trending upward overall from May 2010 to May 2012.  In May 2012, the current sales absorption rate was 46.3% of properties under contract and 40.7% of properties sold.

Los-Altos-Median-May-2012

The median price in Los Altos is showing a healthy, and likely sustainable, upward trend over the last two years.  When discussing Mountain View, Los Altos, Los Altos Hills and Palo Alto, Los Altos is the only market that did not see a dip in late 2010/early 2011. Since September 2011, this upward trend has become a bit more pronounced with the median price in May 2012 being $1,786,500 which is more than $300,000 higher than May 2010.

Mountain View Market Analysis – May 2010 to May 2012

An analysis of the charts below reveals that Mountain View, though it is more volatile than some of the more expensive markets in the area, is consistently considered a seller’s market. Mountain View is quickly absorbing all of its homes for sale and currently has one of the lowest month’s supply of inventory (MSI) in the Bay Area at .5 months. Only time will tell how long this astoundingly low inventory supply will affect the other key statistics though it can only be assumed that days on market (DOM) will decrease while sales absorption (SA) rates and median prices will increase given historical data.

Mountain-View-Market-May-2010-to-May-2012

The chart shown above graphs Mountain View’s MSI as well as the DOM.  Traditionally, DOM is cyclical in nature decreasing in the spring and summer, and increasing in the fall and winter, and the Mountain View market is no exception.  For the most part, the level of inventory has been decreasing since May 2010.  It is currently sitting at an astonishing low inventory level of .5 months.

Mountain-View-May-2012-Sales-Absorption

As you can see by the chart above, the sales absorption rate in Mountain View has been steadily increasing from May 2010 through May 2012.  In May 2012, the current sales absorption rate was 64.6% of properties under contract and 54.6% of properties sold.

Mountain-View-May-2012-Median-Price

Over the course of the last two years, Mountain View had a swing in median price of about $200,000 as shown in the above chart.  The solid line showing average median price  has been relatively stable with a slight dip in late 2011.  Since February 2012, Mountain View has seen a stable median price just over $750,000.

Bay Area Real Estate Analysis: Real Estate Terms Defined

There are several key statistics that are used to determine the health of any real estate market – average days on market, month’s supply of inventory, sales absorption rate, and the median sales price. Days on market (DOM) describes how long a home is active on the market before its status changes to pending.  The average days on market is determined by adding each listing’s days on market in a month, then dividing by the number of active listings for sale at the end of that month.

Month’s supply of inventory (MSI) is an estimation of how long it will take all the homes on the market to be sold.  It is based on the current number of homes for sale and the past absorption rate.  MSI is used to determine if the market is considered a seller’s market, a balanced market, or a buyer’s market.  Though opinions vary, 0-4 month’s supply of inventory is considered a seller’s market, 4-6 months is a balanced market, and anything over 6 months is considered a buyer’s market.

Sales absorption (SA) rate is a percentage rate that shows the ability of the real estate market to sell, or absorb, all the homes for sale (inventory) currently on the market.  It is calculated by dividing the number of homes sold in a month by the number of homes for sale at the end of that month.  A higher percentage rate means that the market is absorbing its inventory at a faster rate.

Median sales price is the middle price where half the homes were sold above this price and half were sold below this price.  The median sales price is considered less biased than average sales price since a small number of high priced homes won’t weigh as heavily on the outcome.  Since it is important to know specifics about the homes that make up this number (i.e. number of homes sold in a month, type of home sold), this number is just another piece of the formula.

Now that we have defined the key statistics, let us see how they relate specifically to the housing markets in Mountain View, Los Altos, Los Altos Hills, and Palo Alto.

Mountain View Market Analysis – May 2010 to May 2012 
Los Altos Market Analysis – May 2010 to May 2012
Los Altos Hills Market Analysis – May 2010 to May 2012
Palo Alto Market Analysis – May 2010 to May 2012 

Median Home Prices and Sales in the Peninsula

The San Jose Mercury News has a nice breakdown (below) of the median sales price and number of sales for each zip code in the Peninsula (Santa Clara County, San Mateo County, and Santa Cruz County). You can also see the percent change comparing this January to the same period in 2010. In the Silicon Valley (Santa Clara County) the median sales price for all homes was $460,000, a 2% drop from the same period last year. But looking at resale homes, we saw a 1.9% increase to $529,000. Looking at number of home sales in the area, there were 1,424 sales for all homes, a drop of 10.9% from last year; in resales, 987 sold, which was 5.6% less than last year. We'll soon see in the spring and summer months of 2011 if it picks back up, when the majority of sellers and buyers are on the market.

Overall, Los Gatos Los Altos zip code 94024 had the highest median sales price of $1,569,000, but Palo Alto/East Palo Alto zip code 94303 had the highest $/SqFt at $883. On the other side of the scale, San Jose zip code 95133 had the lowest median sales price at $230,000, and Gilroy zip code 95020 had the lowest $/SqFt at $195.

Bay Area Real Estate in the News: Foggy With a Chance of Sun

DataQuick released their December 2010 monthly report for the Bay Area recently hitting the headlines with "Bay Area Housing Ends Year With Many Looking but Not Buying." But amongst the headline there were also bits of sun hinting of more to come for Bay Area real estate.

Here's what John Walsh, DataQuick president, said:

“While the dicey economy and employment concerns are major factors, tight mortgage credit is also a big issue right now, especially for the upper half of the market. There’s a lot of pent-up supply and demand out there, which will start to meet when the lenders re-open their spigots a turn or two,” he said.

Silicon Valley Housing Market Trends – Fourth Quarter 2010 Update

Since the crash, the Silicon Valley has recovered faster than the nation on average. Narrowing the range to our four comparison cities - Los Altos, Mountain View, Palo Alto, and Sunnyvale - we have an above average group even against Santa Clara County (see graph below). Experts at DataQuick, an independent real estate analysis company, report that the median sales price and home sales have fallen in the Bay Area from a year ago. The same is true in our example cities. But in a post-crash economy the most important factor real estate professionals, buyers, and sellers are looking for is a stable market.

Prices in our four cities have remained stable, yet deprecated, for the past two years. What will really excite the housing market is a return of high-cost homes and increased buyer confidence found in areas such as gains in employment and relaxed credit standards from banks. While some have seen this as an opportunity to find a house for less, most of the market is collectively holding its breath.

So with anticipation of what 2011 brings, lets review how 2010 was for our four real estate cities.

Median Selling Price Q4 2010

We've also talked about the median selling price over the years here and here, and we're getting further away from the dump in housing prices that occurred late 2008. Like we mentioned in the opening, what people are looking for is stabilization, but also, at what price will that occur.

This quarter, Palo Alto nearly dropped to its lowest price since the bust, unusual for a strong market, but is expected when top-tier homes are not being put up for sale until the market improves. There is obvious demand in this city as it has the lowest average days on market of our comparison cities (see third graph). Currently, Palo Alto is around 2005-2006 levels, which is about 4% lower than the fourth quarter in 2006 compared to the same quarter in 2010.

But where Palo Alto struggled in the past two quarters, Los Altos has risen two straight quarters. Although the news is tempered by its current fourth quarter median sales price, which is about equivalent to its first quarter in 2006.

At a price point $500,000 or so lower are Mountain View and Sunnyvale. Continuing to be the most stable city of the group, Mountain View has reliably hovered at a median price of $900,000 for single-family homes -- equal to the first half of 2006.

Sunnyvale reflects the current movement of Santa Clara County, and moved back to levels found near the end of 2004.

Sales Price to Listing Price Ratio

The sales price to listing price ratio gauges buyer and seller expectations. (Consider that a 1% difference here on a million dollar home is equal to $10,000.) The first thing that jumps out is Palo Alto is the only city in our comparison where homes are selling higher than their listing price, a ratio above 100%.

With Palo Alto and Los Altos trends reversed from our last graph, Los Altos increased its median price but the majority of the home sales in the city have made pricing adjustments to fit the mood of the conservative buyer. Mountain View, which also saw a bump in the median price, faced a dramatic drop of about two percent to 98%, down from 100%. This could be a correlation with more aggressive sellers entering these markets, but they are not getting the bites they saw in 2008.

Sunnyvale remained similar to the previous quarter, nearing a balanced market between buyer and seller.

Interestingly, Santa Clara County has not realized a ratio above 100% for some time, unlike our four comparison cities. Going back to our 2000 to 2010 report, the county broke 100% in the beginning of 2004, peaked above 104% for single-family homes in spring 2005 and fell under again mid-2006. As a comparison, the average ratio for our four cities remained above 100% from 2004 until late 2008.

Average Days on Market Q4 2010

Average days on market is another good indicator of market health. So much so that sometimes buyers and sellers put unreasonable weight into days on market of a house listing. But in markets where emotions can play a large role in a purchase, it is not unexpected and something to be dealt with.

This graph mostly looks like a mess of weaving colored lines, with no consideration to housing prices. Signs of a bubble popping through a climbing average days on market were felt in Santa Clara County as a whole late 2005, whereas most of our four comparison cities kept an average days on market below 40 until 2009. The days on market of the county and our cities are more closely aligned now that the market has cooled, as we can see they are following a similar trend since late 2009.

Number of Closed Sales Q4 2010

In the number of closed sales graph we were able to put our four comparison cities on the left vertical axis and also include Santa Clara County homes sales using the right vertical axis. While county sales are not comparable in number to city sales, displaying both can help compare overall trends to the individual cities.

Traditionally, home sales dip during winter and peak during spring and summer. But looking at 2010, Palo Alto pushed up, Los Altos dipped, Mountain went up, and Sunnyvale followed the winter plunge. Buyers are out there combing for good deals, especially in valued markets such as Palo Alto. Though previous years have shown that the biggest dip happens during the first quarter of year, so we'll have to wait and see if these cities continue to break the trend.

One positive emerging trend occurring for all our four comparison cities and county alike, is a steady increase of sales, most clearly seen when you compare first quarters.