Silicon Valley Housing Market Trends – Third Quarter 2010 Update

For the 2010 third quarter housing market report we are going to look at quarterly graphs back to 2006, which should help us better understand where we are today in the Silicon Valley. After the crash in 2007, the best thing we can do is look how are we doing compared to the year before. Putting a long view on it spins it for the worst: Bay Area sales: a region on a tight rope; Bay Area September Home Sales Second-Lowest in 19 years. Our four comparison cities -- Sunnyvale, Mountain View, Palo Alto, and Los Altos -- have performed well in the last year. Here are some highlights that compare this quarter from the same period in 2009:

- Sunnyvale, Mountain View, and Palo Alto have improved their median sales price - Average days on market dropped 30% or more in all four cities - Palo Alto bumped above 100% in the sales price to listing price ratio for the first time since 2008 - Number of closed sales are up in Palo Alto and Los Altos, and down in Mountain View and Sunnyvale; Concurrently, the same is true for total sales volume.

So read on to get more information about the number of homes sold, median sales price, average days on market, and selling price to listing price ratio. All of our data comes from MLS listings inc. measuring single-family homes.

closed sales - 2010 Q3

The homes sold graph clearly shows the natural market cycle that dips in the fall and peaks in the spring and summer. What we are looking for in the following graphs is how each individual city performed before the housing bubble crash (pre-2007), during, and in the recovery period (after 2009).

All cities began to slide in 2007 and dropped to their lowest levels at the end of 2008. This also meant more homes on the market and an increased inventory, including foreclosed and short-sale properties.

If we compare the first quarter of 2009 to the first in 2010, all four cities jumped in number of homes sold: Los Altos (+133%), Mountain View (+130%), Palo Alto (+44%), and Sunnyvale (+13%).

median - 2010 Q3

In median sales price we can see the obvious spike in home prices that occurred because of the housing bubble. Mountain View peaked mid-2008, about a year before the other three cities did. Mountain View also suffered less of a downturn when the bubble popped. You can see the other three cities sliding at the end of 2008, while Mountain View prices increased.

Today, we notice that levels have smoothed out since 2009 and have worked their way towards 2006 levels, experiencing a small drop, with Los Altos the exception, this quarter.

Another thing to consider in the steep drop of home prices at the beginning of 2009 was in part of expensive homes coming off the market, such as in Los Altos, and low-valued foreclosures and short-sales coming onto the market, bring down the overall median sales price. Like mentioned earlier, Sunnyvale (+3.6%), Mountain View (+3.4%), and Palo Alto (+6.7%) increased their median sales price compared to last year, but realized a deprecation from last quarter; the reverse is true for Los Altos.

average days on market - 2010 Q3

Average days on market is a good indicator of market health -- closer to 30 days means properties are coming onto the market at a good price and buyers are interested; above 60 days means properties are priced poorly or buyers are nervous about the market, or both.

Los Altos peaked in early 2007, quickly dropped, and followed the similar trend of the three other cities, but taking, until 2010, the longest to recover.

Sunnyvale is interesting because it has the largest population and is the city with the lowest median sales price. It is more likely that Sunnyvale had more distressed properties that pushed up its average days on market higher than the other cities from 2007 to 2009. But Sunnyvale also dropped the soonest once buyers became confident in the market again just after 2009.

Palo Alto, considered one of the strongest housing markets in the state, had the lowest days on market this quarter of our comparison cities. In the next graph we can see that it is also the only market that has turned into a seller’s market.

sales to listing ratio - 2010 Q3

In the sales price to listing price graph we explore what makes a buyer’s market (below 100%) and what makes a seller’s market (above 100%).

As the housing bubble grew, buyers were willing to pay above listing prices to get the home they wanted. From our previous median sales price graph, home prices peaked in the third quarter of 2008, but then quickly fell in 2009 -- Los Altos being a major example of peaking in median sales price then falling the most in both the median sales price and the listing price to sales price ratio. Buyers weren’t taking anything for a period and sellers weren’t ready to adjust their home prices.

It has taken until 2010 and later for the market to really stabilize here in the valley. The ratios for Mountain View and Sunnyvale are hovering around 100%; Los Altos is still struggling at 97%, while Palo Alto has turned to a seller’s market at 101.26%.

Closing It’s always easy to look back and be able to see that the housing market was peaking, but at the time it is very difficult for an individual to judge if the market would sustain its levels or pop like it did. What we are realizing today is a much more conservative market that is looking for a sustained growth rather than the feeding frenzy that happened. One advantage of being in the Silicon Valley is that although we took a hit, we returned to levels that existed only four years ago and are seeing signs of stabilization or even growth (Palo Alto really standing out). We’ll be able to tell in the next couple quarters if that holds true (the upcoming winter quarter is slower for real estate), and we’ll try to do a larger comparison that shows the Silicon Valley compared to other parts of the nation, and lastly, how neighborhoods within cities are doing.

Palo Alto Housing Market – Third Quarter 2010 Update

Palo Alto really established itself this quarter as a market leader. Compared to the third quarter in 2009, Palo Alto has improved in all five measures. This quarter Palo Alto jumped its selling price to listing price ratio ahead of the other three cities in our comparison to 101.26%, turning it into a seller's market. Though, what this means for future home prices or the market is anybody's guess as we enter the winter quarter.

The average days on market in Palo Alto remains the lowest of our four cities at 35 days, a drop from 57 days for the same period last year. Palo Alto also has the highest total sales volume, even though it has the second smallest population in our comparison. This is due to the wide range of property values available in Palo Alto, from just under a million to the many millions.

Los Altos Housing Market – Third Quarter 2010 Update

One thing to consider when looking at data from Los Altos is that its population of around 30,000 is less than half of the next smallest city in our quarterly comparison. But, on the other hand, the median price is the highest at $1,565,000 -- 13% higher than Palo Alto and almost double either Sunnyvale or Mountain View.

median_2010Q3

In the third quarter of 2010, the median price bumped up 4.3% from last quarter and is equivalent to 2006 levels. Another positive sign for Los Altos is that average days on market is in the 40s range, a significant improvement from the third quarter last year, where it was hanging out at 67 days.

The last item of note for Los Altos is the sales price to listing price ratio has fallen this quarter, 96.96% from 98.21% last quarter. Since 2008, Los Altos has been a buyer's market, while our three other comparison cities have been trending towards a seller's market. Buyers aren't necessarily hesitant but we are seeing a lot of price adjustments in the area.

Mountain View Housing Market – Third Quarter 2010 Update

Part of the advantages of Silicon Valley is that the housing market ride for the past few years has been less bumpy than what the nation has experienced. A good example of this calm is in the city Mountain View.

Even examined against our other comparison cities, Mountain View has been the most stable, especially in regard to the median sales price. It bumped up to $1,148,440 during the boon in 2007, but unlike everybody else in 2009, it bumped up instead of sliding. Since then the city median has floated at $900,000 for single-family homes.

Average days on market bumped up and closed sales fell compared to last quarter, but some of that is due to market cycles. The sales price to listing price ratio is at a healthy 99.94%, meaning a fair market for both buyers and sellers.

Part of the stability in Mountain View is due to the reasonable prices compared to Los Altos and Palo Alto. There will always be buyer demand at just under a million, especially since it shares the benefits of being a neighbor to prestigious cities, has good schools, and an ideal location in the Silicon Valley.

Sunnyvale Housing Market – Third Quarter 2010 Update

Sunnyvale has gone through another quarter without any major hiccups, showing improvements from a year ago. The median sales price has been steadily increasing from its recovery in early 2009, and is equivalent to 2006 prices. Average days on market have also dropped to 41 days, down from 77 days in the first quarter of 2009, though it has yet to reach the unusually low 23 days that occurred in the second quarter of 2006.

Lastly, the sales price to listing price ratio is hovering around 100%, meaning sellers are pricing homes at prices buyers expect to pay -- neither a strong seller's market as in 2007, nor a buyer's market as in 2009.