What’s the Silicon Valley real estate market doing? Silicon Valley is composed of many micro markets, and they may all behave independently of one another, but we are seeing some general trends.We’ll have a look at them today.  Things have really, really changed from six months ago. It’s very dramatic.

First, a city by city comparison of the numbers for the county and Campbell, Cupertino, Los Gatos, Saratoga, San Jose (as a whole), Sunnyvale, etc. This first chart is for houses in the cities and towns of Santa Clara County. On the first line, which is for the entire county, please notice the sales price to list price ration – it is over 100%.  This is perhaps the best indicator of the market heat we see here.  Also note how low inventory is for the county – from a year ago, it’s off 29.2% (and that year was low also).

Santa Clara County residential real estate statistics by city for single family homes March 2012

Perhaps not surprisingly, the sales price to list price ratio is highest in Palo Alto, where it was nearly 109%. Mountain View came in at 103%, Cupertino and Los Altos at 102%, Los Gatos, San Jose and Sunnyvale at a little over 100%.  Some areas, such as Monte Sereno, have so few sales that their numbers fluctuate wildly (in the case of Monte Sereno, best to look to similar areas of Los Gatos for the best sense of pricing, usually, as they share schools, parks, police etc.).

Next, the same type of data but for condominiums and townhouses rather than houses & duet homes:

Santa Clara County residential real estate statistics by city for condos & townhomes March 2012

The condo market has been taking a beating for years, but at long last, the sales price to list price ratio is now very close to 100% (99.9% for the county) and many areas are more than 100%: Campbell, Cupertino, Los Altos, Milpitas, Mountain View, and Palo Alto. Most of the rest of the county is at 99% with just a couple of exceptions.  What’s happening? The inventory here tells the story: county wide, it’s down 74% from last year.  In Campbell and Los Altos it’s off 75%.

Inventory is at record lows, buyer demand is way up: we have a strong sellers’ market with multiple offers and overbids

First, there’s extremely low inventory. In February there were just 1389 single family homes for sale in Santa Clara County.  A balanced market is somewhere around 3000 homes – so this is quite severe!  In fact, it’s the lowest amount of inventory for any February going back 10 years.  Here’s what it has looked like in other Februarys, per my Santa Clara County Real Estate Report (you can see these numbers yourselves): (more…)

Some first time home buyers in the San Jose or Silicon Valley area get confused by the “assessed property value” of houses, condos, or townhouses: they mistakenly think that this number has some bearing on the real estate market value.  It doesn’t.  The assessed value is used only for determining the amount of property tax being paid.

Residential real estate in California is reassessed upon transfer of title, or change of ownership, in most cases (there are some exemptions). From there, the assessed value can only go up 2% per year at most (thanks to the passage of Proposition 13 in the 1970s).  When property values decline, as they have recently, owners of properties with higher than market value assessments can appeal and get a temporary rollback in valuation for the purposes of having property taxes lowered.  This is very very common (and even so, the assessed value is usually still off as it’s based loosely on the January values of that year – the values are often higher than market value for these petitioned properties).  The tax assessor’s office has a lot of latitude in determining the assessed values; it is nothing at all like an appraisal, which should use strict comparisons.

Let’s look at a few hypothetical examples, taking tract housing with the same square footage, layout etc:

1 – If a couple purchased a Cambrian Park house in 1960 to 1970 and paid $20,000 for that property, but today’s value is approximately $500,000, the property tax being paid will reflect the long term ownership and won’t be based on the current market value.  That couple might be paying $600 to $800 per year in property taxes with a corresponding “assessed value” of about $52,000. (more…)

Sometimes the list price on a Silicon Valley home for sale isn’t at all what the listing agent or the seller is expecting in terms of a sales price.

Sometimes it’s closer to a lost leader – that is, it’s really only intended to get home buyers into the door. Lots of them. The idea is to create excitement, and hopefully a feeding frenzy with multiple offers.

Other times, of course, a house or condo in the San Jose area may be an overpriced listing. In those cases, it’s more like a “fishing expedition”. More like, “let’s see if anyone bites”. There are always a percentage of these on the market. When you see homes listed for 60, 90 or more days on the valley floor, most often the culprit is an inappropriately high price – and most buyers aren’t biting at that bait.

Right now, it’s a mixed market in Santa Clara County real estate. If you find a home you like, the next question is this: what’s it worth? And finally, what’s it worth to you? Many times, the best advice is to ignore the list price, if it’s a new home, and just do your homework on what the current competition is and what’s been selling.

You may find that the home you love is priced high, on the mark, a little low, or crazy low.

While it’s helpful to know what the average ratio is between list prices and sales price, that information can never substitute for market knowledge.  The most powerful figure to understand is the absorption rate or months of inventory (or days or weeks of inventory).  Six months of inventory is considered a balanced market.  The smaller the months of inventory is, the quicker the pace of the market, and the bigger a frenzy there is over good inventory. 
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