Home Prices Rise as Sales Increase

What kind of shill writes a headline like that? The headline in the Mercury News will probably blare: “Valley Home Prices Fall as Sales Remain Sluggish”. That’s why I prefer to show you the trend charts so you can understand the context and make your own assessment as to what’s happening in the market. It’s true that median price for single family homes in Santa Clara County is down approximately 2.5% from the year ago March  level, but it’s also true that prices are now rising. In fact, median home price for single family homes in Santa Clara County is up 9% from the low reached just two months ago. Amazingly, the current median price of $810K is only 6% off of the all-time record price of $860K  reached  last summer. Continuous Days on Market, while still long by historical measures has also fallen to 76 days from its peak of 87 days just two months ago. So while the gloom and doom headlines continue to attract attention and sell newspapers, the fact is that the market is gradually but definitely recovering in the Santa Clara Valley.

 

The market continues to be bifurcated with the west valley continuing to do amazingly well despite the slowdown in the rest of the valley. This month I’ve included trend charts which break out the west valley cities to illustrate the difference in market conditions. While there’s more “noise” in the trend data due to the smaller population size, median price for the west valley has held up amazingly well, bouncing around a level of $1.3M for the last year. In fact, the peak median price was reached as recently as February ’08 before dropping back to $1.26M last month. Notice also that Continuous Days on Market for the west valley is back down in the 30s after a short rise into the 60s during the holiday months. So what’s really going on is that the higher-priced west valley areas have experienced only a moderate slowing while prices have held fairly steady for about a year now. At the same time, the lower-priced areas of the county experienced a significant slowdown and are just now showing the first solid signs of recovery. The dearth of foreclosures in these lower-priced areas has upset the supply-demand balance, and until this excess inventory is worked off, expect this bifurcated market to continue.

 

Joe's Advice:

• Buyers : Buyers are still singly-focused on home prices and are waiting for the “bottom”. It should be pretty apparent from looking at this month’s median price trends that the bottom has come and gone. Nevertheless, prices are still 6% below last summer’s peak, inventory is plentiful and with Days on Market averaging 76 days, you can still negotiate a really good deal.  What Buyers should be focusing on is interest rates. With 30 year conforming rates in the high 5% range, Buyers should be jumping at this opportunity to buy while both prices and rates are low. In fact, a 1% increase in interest rates would completely offset a 16% drop in home price! So my advice is to get pre-approved and actively look for a home while inventory is high, prices are low and rates are (temporarily) affordable.  

• Sellers : If you’re fortunate to live in one of the west side communities, this spring and summer should offer good selling opportunities as long as you price competitively, put your home in top condition and market aggressively. If you don’t live in one of the west-side areas and you’re not a move-up Seller then it’s probably best to wait a bit longer for the excess inventory to be worked off.  Sales, while increasing is still below normal levels and with inventory rising, you’ll have lots of competition. Best to just continue to hunker down and watch as the market recovers over the next several months.

On the other hand, if you’re a move-up Seller, then depending on what area you’re moving up to, you might save more on the purchase than you lose on the sale. This won’t work if you’re going to sell in San Jose and purchase in Mt. View for example but if you plan to sell in San Jose and move up in San Jose (or Santa Clara, Milpitas, Morgan Hill, etc.) then the depressed prices could actually work to your advantage. I can prepare market stats for you for any area, so if you’re considering this let me know and I’ll help you with your financial assessment.