Andrew Hartland's Blog

Sales of both single-family, re-sale homes and condos fell in July with the expiration of the Federal tax credit.

Home sales were off 15.6% compared to last July, while condo sales were down 18.8%.

The new state tax credit has pumped a little life into the high-end market. With more sales in that segment of the market, the average price for homes in July went over $800,000 for the first time since August 2008.

The high-end market has been helped by increasing access to jumbo and super-jumbo loans. Historically, and until July 2007, the spread or difference between conforming mortgage rates and jumbo rates moved within a narrow range of about 0.20%. At the trough of the market, the spread was 1.9%. Now, the spread is down to 0.5%, and the secondary market for jumbo loans is awakening.

The median price for homes was off 1.1% from June, but it was up 7.2% year-over-year. The average price was up 2.4% from June and up 12.3% compared to last July. This is the tenth month in a row prices have been higher than the year before.

The sales price to list price ratio for homes stayed over 100% for the thirteenth month in a row: 100.2%.

The median and average prices for condos were up 3.3% and 9.5% respectively year-over-year.

Pending sales were down from June, but were still higher than the year before. Pending home sales were up 44.2%, while pending condo sales rose 44.7%.

Inventory for homes rose 9.6% year-over-year. This is the first month since November 2008 inventory has been higher than the year before.
Speaking of inventory, Leslie Appleton-Young, chief economist for the California Association of REALTORS® (C.A.R.), said, at a recent Silicon Valley Association of REALTORS® (SILVAR) meeting in Palo Alto last month, in five to ten years California will experience a housing shortage.

She said household growth for the state is expected to be 200,000 a year. The CBIA reports only 13,000 permits pulled in the first six months of the year.

Many Silicon Valley homes in the mid range (which I consider $850K – $1.1M) are selling with multiple offers and often going over asking. Three bedroom homes are flying off the shelves, as long as they are in good condition and in the right location.

In cities with the best schools, such as Cupertino, Mountain View, Palo Alto, and Sunnyvale, properly-priced and well-maintained homes are still receiving multiple offers and the sales price to list price ratio in all those cities is over 100%.

Investors are buying in the low-end of the market, hoping to buy and flip. That has been somewhat problematic as, when they go to flip, their original purchase price is probably part of the appraisal, which lowers the market value of the property.

It is better for investors to buy and rent it out for a year rather than trying to flip immediately.

The problem with prices in this segment of the market is the poor condition of REO properties that have been stripped by the former owners, and short sales with sellers who are no longer doing any maintenance. These sales are skewing the prices on similar properties.

First-time buyers continue to be edged out by investors for REO properties because the investors are coming in with all cash offers.

First-time buyers should concentrate on well-kept homes in good neighborhoods rather than trying to get a steal. Doing that will lower your frustration level.

The high-end market, above $1.2 million, is probably the weakest segment. Homes here are languishing on the market.

With interest rates at 50-year lows, now is an excellent time to buy a home, particularly if you plan on staying there for a while.

Inflation is coming, make no mistake about that. It’s not a matter of if, but when. In the future, you will look back on this period as a golden time to buy real estate and lock-in a 30-year fixed rate mortgage. Whether or not you look back and smile will depend upon whether you buy or not.

HIGHLIGHTS for May 2010

- Home sales increased, year-over-year, by 8.5% in May. Year-to-date, home sales are up 26.7%.

- The median price for single-family, re-sale homes gained 4.5% from April, down 35.8% year-over-year.

- Days of Inventory now stands at 93.

The aftermath of the Fed tax credit, which expired April 30th, won’t be completely known until the end of June. Although the tax credit expired at the end of April, when buyers needed to be in escrow, buyers have until June 30th to close the sale.

The effect of the tax credit was complicated by the new state tax credit which started May 1st. Many buyers delayed escrow so they could take advantage of both credits, stealing sales from April, down 1.4% year-over-year, and pushing them into May, where home sales were up 21.1% year-over-year.

Pending home sales, goosed by the tax credits, continued to be near the record high recorded in April. We expect home sales to be strong in June.

The median price for single-family, re-sale homes edged upward in May by 0.2% from April. It was up 29.1% from last May. This is the eighth month in a row the median price has been higher than the year before.

Although inventory grew 2.4% from April, it was down 19% year-over-year. This is the eighteenth month in a row inventory has been lower than the year before, putting upward pressure on prices.

The sales price to list price ratio stayed over 100% for the eleventh month in a row: 100.9%. This signifies that well-priced homes in the best areas are receiving multiple offers.

ARE WE THERE YET?

If the previous numbers don’t convince you the real estate market in Santa Clara County has bottomed out, let’s look at some other statistics.

First, foreclosures levels: they dipped by 2% in April year-over-year. That’s the first annual decrease in more than five years, according to report issuer RealtyTrac.

Second, shorter marketing time: in May, average days on market was 39. That’s the shortest time since July 2007.

Third, Case-Shiller Home Price Index: often considered the gold standard for real estate statistics, the index for the San Francisco Bay Area was up for the eleventh month in a row, according to their latest statistics reported for March 2010. I expect when they report on April and May, we will see the index continue rising.

- In April, the median price for single-family, re-sale homes reached its highest level since August 2008.

- The sales price to list price ratio was over 100% for the tenth month in a row.

- Pending sales reach record levels in April.

- Details on the new state tax credit for home buyers.

The median price for single-family, re-sale homes reached its highest level since August 2008: up 34.6% year-over-year to $632,450.

The sales price to list price ratio, a good indicator of demand, for single-family, re-sale homes in Santa Clara County was 101% in April.

This is the tenth month in a row the indicator has been over 100%.

Home sales were up 4.1% from March, but down 1.4% year-over-year.

Pending sales reached record levels in March with 2,519 homes under contract. This bodes well for sales in the next few months.

Inventory also increased in April from March: up 8.2%, and it was up 0.2% compared to April 2009. This is the first time inventory has been higher than the year before since January 2009.

Seems like home owners are beginning to feel more confident in the market. Of the 1,022 homes put on the market in April, only 85 were bank-owned.

Go to my on-line site SCVReport.com for the full report, plus a city-by-city breakdown.

If you would like to search for properties in the Santa Clara Valley, go to my online search form at: MLS Search

If you find the Santa Clara Valley Real Estate Report useful and know someone else who might, please feel free to forward this e-mail to them. There is also a four page printable version with more articles here:
Printable Report.