People often ask me, “how’s the market?”  The answer is, it depends.  It depends on whether it’s a short sale, REO or regular sale, the schools, view, condition, etc. The Silicon Valley real estate market really isn’t “one market“. It’s a bunch of smaller markets woven together. So the answer depends on what you’re looking at.

Today we’ll focus on the sale type and take a broad view of regular sales vs short sales with Silicon Valley houses/duet homes and condos/townhouses.  The data comes from MLSListings.com, our local multiple listing service, of which I am a member.  I crunched the numbers today. I have made every effort to provide accurate info, but can’t guarantee it.

To arrive at the months of inventory, I get the number of active listings (not pending, but available, or “status 1″ for my local Realtor readers) and the number of closed listings for the same area/home type which have closed in the last month.  Divide the first number by the second and you get months of inventory or MOI.  Below please find the numbers for Santa Clara County as a whole, San Jose as a whole, and various cities or areas of San Jose.

The National Association of Realtors calls 6 months a balanced market. In our area, at 5 months it is really a buyers market, though. The higher the MOI, the “worse” the market is for sellers – things just aren’t selling well. Over a year and it feels impossible.

Generally speaking, it’s a sellers market for most Silicon Valley real estate – the non-distressed homes on the market are selling very decently overall (Los Gatos seems to be the exception).  Also generally speaking, it’s harder to sell a condo or townhouse than it is a single family home (house or duet home).  It’s worse still if it’s a short sale townhome or condominium.  Sunnyvale is the toughest market around for short sale townhouses or condominiums – it is at a whopping 16 months of inventory.  There are a ton of short sales and buyers are simply not buying them.

At the other end of the spectrum is Cupertino, where non distressed homes are a red hot sellers market at just about 1.5 months of inventory.

Broad generalization – Best market:  non-distressed houses.  Worst market: short sale condos & townhouses.  There are some exceptions. It’s not all that easy to sell a house in Los Gatos, and short sales in Cupertino and selling well.  So many nuances even in the broader markets.

How’s the market? It depends!  A Sunnyvale condo short sale seller is in a totally different market than the seller of a non-distressed house in Sunnyvale.  Same city, completely different market.

Right now in Santa Clara County (which is the bulk of the “Silicon Valley” area), there are 3392 houses available (not under contract) and there have been 853 which have closed in the last month.  That’s 3.98 months of inventory, or a seller’s market.  (There are 2668 which are under contract, but many are short sales which may never close escrow.)  Four months of inventory for the county is pretty strong overall.

For condominiums and townhouses in Santa Clara County, there are currently 1406 on the market and 289 which have sold/closed in the last month, giving us 4.87 months of inventory, which is technically a seller’s market but is very close to a balanced market. (There are 1096 pendings.)  The average “days on market” for the solds vary from about 50 days to about 115 days, depending on whether or not it’s a distressed sale.

Whether a home is in a buyer’s or seller’s market depends largely on its location, price point and sales type.  It is easiest to sell a home which is a “regular sale” situation, harder to sell a bank owned home and hardest to sell a short sale listing.  It’s easier to sell entry level priced houses, harder to sell luxury townhouses or condominiums.

For information on your part of the Silicon Valley real estate market, please email or phone me today!

With the massive housing correction, we saw a rise in real estate inventory which has now begun to subside, and we saw a wave of short sales and bank owned properties begin to roll through Santa Clara County.  In the “West Valley” communities of Los Gatos, Saratoga, Campbell and Cambrian Park, we have seen the impact of this to varying degrees.

Today I pulled the numbers for these four areas of Silicon Valley to see this history of inventory and pending sales over the last six years to get a year-over-year view of the market.  (Status 1 = homes available, Status 2 = homes under contract with a seller’s contingency, they might be available, Status 3 = sale pending with normal contingencies on the buyer’s side for inspections, financing, and/or appraisal, and Status 4 = all contingencies have been removed.)

What do these numbers reveal to us?

As you probably realize, the larger the inventory, the more of a buyer’s market it is, meaning it is a more ideal time to buy generally.  Buyers usually do not buy in a buyer’s market, though – which is why the inventory is so large.  Most wait until it’s swung into a seller’s market, when the panic of rising prices and/or rising interest rates gets them “off the fence”.   Our now shrinking inventory tells us that the market has shifted into the sellers’ favor in many areas and price points (not all).  That doesn’t mean that prices are where sellers want them – only that buyers cannot wait to get a good home and will not get the sellers to do all the repairs, as most would have done in 2009 or 2008. Many homes are now selling strictly “as is”.

Another interesting number to track is the “status 2″ figures, which are homes under contract but with a contingency on the seller’s side.  In years gone by, this would normally reflect a “contingent offer”, meaning that the sale was subject to the buyers being able to sell their home.  You can see that usually this is a very tiny fraction of the homes which are sale pending.  In recent years, though, that number has gone through the roof.  Almost all of them now are short sales, and the seller’s contingency is for bank approval & seller’s acceptance of the bank’s terms for the short sale transaction. The seller can back out of the deal with this type of sale. 

Most of the short sales are happening in entry level priced homes, but no part of the San Jose area is now immune.  Of these four parts of the west valley, Cambrian is the most affordable – and it has the most short sales.  Saratoga is the most expensive of them – and it has the least.   Short sales are now closing more than they did in the past, but are still not something you can count on.  Short sales may take 3-6 months to close, or perhaps will not close at all.

Also noteworthy is that the pending sales in the more expensive areas of Los Gatos/Monte Sereno and Saratoga are up from last year.  These parts of the valley have been slower to get busy and it’s encouraging to see the activity finally pick up there. Part of it is no doubt due to an increase in the number of distressed sales, but also some luxury homes are selling too.

Inventory overall is about normal in Saratoga and Cambrian. Campbell and Los Gatos are a still bit high.  If you’re selling a home in Campbell or Los Gatos/Monte Sereno, pay attention to the inventory of homes similar to yours. If your home is simply priced “similarly”, it probably won’t sell. Yours needs to be a “good deal”, which is what buyers are all searching for these days, in order to sell.   Highly motivated? Make sure your property is priced aggressively enough that it’s in the bottom 20% of similar homes and that should get the attention and traffic that will lead to a sale. 

For Saratoga and Cambrian Park home sellers, you can be a little less worried but if you still want or need to sell, make sure your home is priced in the bottom half of similar homes, ideally in the bottom 30-40%. 

Home buyers, remember that while many homes in all of these areas are not selling, the well-priced ones are going fast and often getting multiple offers. 

Can you still get a “good deal”?  A normal 20% down offer will be where the balance is for most home buyers.  Most sellers will give you preference if you have more cash down, but it’s not going to be a 10% discount (probably closer to 3%).  If you are a buyer using FHA financing, please understand that most sellers will not be super excited about your offer because of this so you will probably need to pay more than someone with 20% down to get the same house.  The terms and price work together – if your terms are great, your price will be better (lower).  If your terms are not great, your price will be worse (higher).  It is crucial to factor this in realistically when bidding on homes for sale in Silicon Valley: cash is king – the more you have, the better a deal you will likely get.

The Santa Teresa area of San Jose is enjoying a hopping real estate market with the number of pending sales suddenly going through the roof! (Stat below care of Altos Research, to which I have a subscription. List prices are used.)

Homes in this part of south San Jose are often selling over list price as inventory drops. The days on market appears slow, but a lot of homes that have been “just sitting” on the market are now selling.

The great rush in Santa Teresa is, of course, in response to the list prices, which have been falling steadily in most areas – and making for incredible bargains.

Here are the August sales stats for our MLS “area 2″, Santa Teresa (per the REReport, also a subscription, which uses closed sales):

With more pending sales than active ones, you can see that most houses are now selling and the pace is quickening.  A major player in the market conditions of this part of San Jose is the situation with distressed properties: foreclosures, short sales or homes sold under pressure as they’ve got a notice of default on the property.

How big an impact does the REO or short sale label have on a home’s eventual sales price? How much more or less will a home sell for based on the situation as a “regular sale” or “bank owned” or “short sale”?

Buyers are voting with their wallets. Uncertainty causes buyers to be unwilling to pay top dollar. In some cases, the bottom of the heap is short sales – because the condition is less known (there are no pre-sale inspections) and even more, because the time in which the bank eventually responds, if ever, is likewise unknown. In other cases, REOs sell for the lowest amount because the condition of the home may be especially poor. Some REOs are “stripped”, with whole kitchens missing, trim missing etc. I recently visited a Willow Glen REO that even had a missing shower head in addition to the water heater, kitchen appliances, and windowsill.

Regular sales DO sell for more. How much more? Here are the numbers, which may surprise you. I looked at both 95119 (which is most of “Santa Teresa”) but also our MLS “area 2″, looked at pendings (which reflect list prices), solds in the last month and solds in the last 3 months.

Most regular sales are not only unpressured, but there are pre-sale inspections and often work done to put the home into good shape for the sale. So buyers know that they are getting a solid house with a regular sale.  They know that they will get disclosures completed by the sellers.

The numbers above display a wide range of prices per square foot, but in all cases, the distressed properties are selling for less than regular homes.  In some cases the difference in the average price per SF of the solds is double digits.  Among the pending sales, the list price is 10 – 18% less than amoung short sales or bank owned homes.

The widest gap for the average sales price is about 20%, but if we looked at individual sales we’d find some lower and some higher than that. The worst ones will be abused houses, and the best ones will appear almost like a normal sale, but perhaps a bit dirty.  One of the problems with the “auto comp” sites is that they don’t factor in these conditions, which have such a giant impact on a property’s value.

What is a home really worth? Usually it’s what an informed buyer will pay for it.  In Santa Teresa, as in other parts of San Jose, informed buyers are scooping up bank owned homes and short sales, but only if they’re getting a sizeable discount.  Aggressively priced, well staged and marketing “regular sales” are getting top dollar here and throughout Silicon Valley.

Earlier today I updated my series on Silicon Valley short sales at my Live in Los Gatos blog, where I’ve been tracking the number of active listings in select parts of Santa Clara County which are offered for sale as short sales. Below please find the areas and dates I’ve charted:

To read the entire post, please continue on to Silicon Valley Short Sale Snapshot.