On Tuesday of this week I was showing some nice folks around the San Jose area. As part of our tour, we stopped in at Valley Christian High School (south San Jose – Santa Teresa area). The sky was clear and the views spectacular!  (Disclaimer – in this photo, the sky ended up looking white, so I did tinker with the color.)

From here we were looking at the Santa Teresa Foothills ((lowest, closest hills).  In front of them are the Santa Teresa & Blossom Valley areas of San Jose.  Behind them is Almaden Valley.

Along the coastal range in back, the peak on the far right (with a flat area) is Mt. Umunhum.  To the far left, the higher peaks are where you’ll find Loma Prieta.

Mount Umunhum sits high on the Santa Cruz Mountain range, and from there enjoys spectacular views. Looking inland, you can see San Jose & most of Santa Clara County, on a clear day even as far north as San Francisco from Mt. Umunhum. Turning toward the Pacific Ocean, from Mt. Umunhum’s heights you can see Santa Cruz and Monterey on a fogless day.

This magnificent land is now owned by the public, but there’s no public access yet. For some history and an explanation, take in this video from the Mid Peninsula Open Space Preserve:

Click the “more” link to continue reading…

This week’s San Jose Mercury News reports that progress is being made on the toxic cleanup of the former military base, and that we’re on track to have a usable park three years from now. It’s good to know that restoration of a healthy environment for people and wildlife is underway.

As I recall, another issue (not addressed in this news piece or on the Mid Peninsula Open Space Preserve page where the video was found) involves access and roads to the site itself. The roads leading to Mt. Umunhum are private, and the neighbors adjoining the roads didn’t want them to become public. A look else where on the Mid Peninsula Open Space Preserve site discusses the restricted access and private road issue. However it does not say how this will be resolved when the toxic cleanup is done.

We may be in a recession with 11% local unemployment, but affordable homes are getting scooped up with multiple offers and in many areas, inventory is shrinking.

Today we’ll look at five areas of San Jose which offer at least some, if not mostly, entry level housing: Blossom Valley, Cambrian Park, Evergreen, Santa Teresa and South San Jose.

Evergreen does have some high-end housing in Silver Creek and elsewhere, but it also provides some very affordable homes for first time home buyers.  Cambrian Park is mostly middle class but it, too, has some McMansions (original Cambrian Park tract with large lots and very old homes that are not infrequently bulldozed) and some homes with views (Vista Loop area, bordering Los Gatos and Almaden Valley).  Blossom Valley has some beautiful properties and many close to thecenics Santa Teresa Foothills.  Overall, though, these homes represent affordable or mid-range houses for sale in Silicon Valley.  When we look at them as a group, it gives a strong sense of what the market is doing generally.

The months of inventory reflect how long it would take the current inventory to be absorbed (or sold off) if no new inventory came on the market and sales continued at the current pace.  Six months is a balanced market.  Fewer represents a seller’s market and more reflects a buyer’s market.  As you can see, April shows a push in all five districts of San Jose into seller’s territory:

Why the change from buyer’s market to seller’s market?  South San Jose and Blossom Valley have been flooded with distressed property sales (though not as much as Alum Rock, which was almost exclusively short sales and bank owned real estate sales the first quarter of 2009), pushing prices down substantially and making home ownership affordable for many who were otherwise priced out of the market a few years ago.   Bargain-hunters have been scooping up these homes.  Prices are stable – approximately flat – so there’s not as much fear for further declines in pricing right now.

To keep it from being too busy, I rounded the numbers to the closest whole number.  Using exact numbers, the averages of these five areas by month is as follows:

Right now, buyers in many areas and price points looking for a home to purchase in Silicon Valley are frustrated with the lack of inventory (or appropriately priced inventory), so this graph will not be a suprise to many of them.

Sellers who are unable to get traffic or offers on their homes may find this baffling.  If the market is so “hot”, then why isn’t my home selling? If you are experiencing this market rejection, it’s not that your home isn’t sellable.  Most likely, it means that your price and condition are not realistic for today’s market – if your home is a normal (not short) sale.  Short sales are trickier as some agents refuse to show them since they are harder to close.

Some buyers are holding off, waiting for the next anticipated flood of short sales and bank owned properties.  How many will there be? We don’t know. It might change the market conditions entirely. Or it could be as significant as the local threat of pandemic from the swine flu.

Silicon Valley home values are dropping, but it may not be as bad as you think. If you only read the headlines, you might think that the value of homes across the south bay has dropped 41% in the last year.  For example, Friday’s print edition of the San Jose Mercury news screams in its headline, “Median Home Price Dives 41%”. ( The online edition had a milder headline, Santa Clara County median home price plunges, sales rise.)

Have home prices really dropped 41% from a year ago?  No. (But it is critically important to know how much values are dropping, especially if you put your home on the market.)  The median home price is the number at which half of all sales were higher and half lower than that number.   For instance, if you had three homes sell, one at $300,000, one at $500,000 and one at $501,000, the “median home price” would be $500,000.   If you had five sell at $100,000 and three sell at $2,000,000, the median would be $100,000. You can see the problem.

What the median home price does explain is market heat, or where the market is most active.  Often, the median price tracks home values – but not always. And this is one of those times.

So how much value has been lost? It will vary from area to area, sometimes even block by block.  Loss in value will be tied to when either you bought the home or when your area was at its peak.  For many parts of San Jose and Silicon Valley, that peak was about 2 years ago, late 2006 to early 2007.

The best way to know what home values are doing is to study the comps, or the comparable home sales. It is easiest to do this in a tract neighborhood (we have no shortage of those in Santa Clara County).

For example, in the South San Jose zip code area of 95138, I took a sample tract home floorplan of 1355 square feet and charted it back over the last ten  years.    Here’s what the average price per SF was for that floorplan per year:

2009   $321.03  just one so far – $435,000
2008   $362.45   av sales price $483,870
2007   $470.55  av sales price $637,595
2006   $492.15  av sales price  $666,863
2005   $453.26  av sales price  $614,167
2004   $407.06  av sales price $551,566
2003   $332.39  av sales price  $450,388
2002   $334.46  av sales price $453,193
2001   $304.80  av sales price  $413,004
2000  $318.25  av sales price  $431,288
1999   $225.09  av sales price $304,996
1998   $205.35  av sales price  $278,249

The loss in value in south San Jose has been tremendous. For folks who bought this type of home in this part of South San Jose in 2005 – 2007,  they may be down 30% to 35% or more in home value from the peak until now (not 41% in the last year alone). In dollars, this is a loss of about $232,000 on average from the peak.   Some clients of mine bought a larger home in the same area and the percentage was the same – they were down 33% from what they paid for it in 2005. Even though they’d bought with 20% down, they cannot now refinance without putting more money into the house.

Looking at it as a “rollback” in time, how far back has it gone?  In many parts of San Jose, it is as if we stepped back in time to about late 2002 or early 2003 pricing. In some of the higher priced areas, it’s not so bad – perhaps to 2004 pricing (and in some cases, better than that).

Cambrian Park has fared a little better. This is probably due to the fact that the prices are higher, the schools are better and the folks who bought in Cambrian Park did not so often use riskier loan products. Below, see all the sales of homes with 1100-1200 SF in one part of Cambrian (again, another tracking of tract homes as an indicator). Unfortunately there are no closed sales for this batch in 2009 yet (If we assume that prices are continuing to fall at the same rate, which they may or may not be doing, we might think that the next sale in this group might be at $400 per SF, which would be back to 2004 levels. That’s a loss of about 24% from the peak.)

In the more affordable areas, prices have fallen the hardest. Home sales (the number and percentage of homes selling) is higher, though, as bargain hunters step in to get incredibly low prices.

In more expensive areas, homes are not selling nearly as well, but values are not plumetting nearly as much, either.  In places like west San Jose (Cupertino schools), Los Gatos and Saratoga, home values are down only 20% (or possibly less) from the peak in most areas. In some areas and price points, values are down just 10% but that is the exception, not the norm.

Here’s a selection of sales in east Los Gatos (part of a tract of homes with 2000 to 2400 SF):

The sales are few and far between in these higher priced homes (a trend which is acutely true in the very high end homes in Monte Sereno, Saratoga, Los Gatos, and Almaden). With less data, it’s harder to pinpoint value or its loss, but it appears that the “rollback” is to about 2005 with this group, and that the loss of value is about 20% (there will be some variation in pricing because of condition so I would not use just one high price as indicative of the whole neighborhood’s values).

How much is it costing you to keep your home on the market?

That doesn’t sound so bad, but let’s look at it as a hypothetical dollar amount using easy, round numbers.  This will matter a great deal if your home is on the market but not selling because it’s overpriced and chasing the market down.

(1)  A home such as the South San Jose example, worth about $400,000 and in an area in which prices are falling at the rate of 33% since the peak (or about 1.375% per month).  In this example, the property is losing value at the rate of about $5,500 per month.

(2) A home such as the Cambrian Park example, worth about $500,000 and losing worth at the rate of 24% over the last two years, or 1% per month = $5000.

(3) Let’s say that you’re in a move-up home in east Los Gatos, where  prices have fallen up to about 20% in the last two years (it was worth about $1,250,000 in early 2007 and may now be  worth about $1,000,000).  That’s a loss of appx $250,000 over 24 months, or $10,417 per month. These are very rough numbers and the actual loss may be less.

The discussion of dollars lost per month is important because if you are putting your Silicon Valley home on the market, you need to understand what the risk is with overpricing and chasing the market down.  Put the offer price too high, and your property will not get an offer and sell. You can do price reductions later, but if your home is declining in value at the a certain rate, you have to get ahead of the curve in order to sell.  For each extra month it stays on the market, you will experience a further loss in your net. For many, that means a loss between $5000 and $10,000 per month.

Homes will sell if buyers perceive that they are a good value. To get your home sold in today’s market, it has to be the most appealing property to a buyer – the best price and best condition, the best value on the market today.

If you are thinking of buying a home in Silicon Valley, there are things you want to know upfront so that you make an informed decision. Because the most important factor is “location, location, location”, and because once you buy a home you can’t change it, you’ll need to know some location-specific things, including:

• where are the earthquake fault lines?
• where are the geologic hazard zones, such as liquifaction areas?
• where are the flood plains?
• where are man-made things that will negatively or positively impact a home’s value? Things such as
  • train lines
  • freeways
  • high voltage power lines
  • school district boundaries
  • zip code boundaries
  • proximity to entertainment venues

When looking at maps, sometimes these items show up and sometimes they don’t. Realtors and other real estate professionals in the San Jose area often use a Barclay’s Locaide to locate the natural hazard areas. Google maps can help uncover some other areas, but sometimes it raises more questions than it answers. (Last year a Realtor who doesn’t know the Belwood of Los Gatos area too well phoned me to ask what the object showing up in the hills of Belgatos Park was – it is just a covered resevoir, but it was not identified on the map and concerned some buyers. Local knowledge is still very helpful.)

Tonight I spent some time zooming in on Google Maps, using the satellite view, and idenified many of the paths of the high voltage power lines running through Los Gatos and nearby areas, such as Saratoga, Cupertino, Almaden Valley, Santa Teresa, and South San Jose.

Below, please find the fruit of that labor. I do not claim to have tracked all of the high voltage power lines in the west valley area of Santa Clara County, but I think I got many – maybe even most – of them. I hope you find the information helpful!

View Larger Map

Here in the Valley of Hearts Delight, aka Silicon Valley, the market continues to be a buyers market with downward pressure on prices, longer days on market, and bigger gaps between list price and sales price. What is happening area wide or county wide is not always exactly what we find in smaller market areas. Some parts of Silicon Valley, and some price points, are doing quite well relatively, while others are falling through the floor.

What is happening with San Jose real estate? Let’s look at four San Jose districts, mostly in the west valley area, by their zip code (or main zip): Almaden Valley (95120), Willow Glen (95125), Cambrian Park (95124) and West San Jose (95129).
Below, please find the trends for the median list price of single family homes for sale in these four areas of San Jose:
 
For the most part, it appears that the west valley area of San Jose real estate is continuing to experience noticeable declines in list prices throughout these districts. Interestingly, Almaden Valley and West San Jose (zip 95129) both saw improvement in spring before returning to the downward trend. By comparison, how is San Jose as a whole (the entire city) looking?
This time we’ll view all of San Jose by price quartile to see if the trends are price-point related.
 
It does not appear to be a price point issue – perhaps simply a location issue. The four areas we’re viewing today all appear to be faring much better than the city of San Jose as a whole. They are more expensive then others which are harder hit such as Blossom Valley, Santa Teresa, South San Jose and Evergreen.

Next, let’s have a look at the median list price for condominiums and townhomes in Almaden Valley, Cambrian Park, Willow Glen and West San Jose:
 
This is not nearly so consistent. What’s happening? The Silicon Valley real estate market for condos and townhomes has generally gotten pretty beat up this year; the reason is that many who could afford only a condominium or townhouse before can now get into a single family home instead. The areas in which there’s an uptick in pricing are those with stronger schools. Willow Glen is extremely charming and centrally located, but the public schools generally do not perform as well ss those in the other three areas in which prices are holding up a little better. So perhaps it is that good schools are driving home sales.
Again, let’s compare the San Jose condo market in these four areas to all of San Jose and see it by quartile:
 
Again, the San Jose condo market, especially in the lower price ranges, has had a very steady downward trend in list prices. In Almaden Valley, Cambrian Park, Willow Glen and West San Jose, there is decline noted, but not so severe.
What can we expect next? Economists vary on when they see recovery happening in Silicon Valley and San Jose in particular. As long as foreclosures are a large part of the resale market, it will put downward pressure on prices. As I see it, while there are adjustable rate loans continuing to adjust upward (which is happening now, particularly with the volatility in the indices used such as the LIBOR), there’s a threat of more short sales and bank owned sales pulling the market down. My sense is that things may improve a little after the election because the uncertainty has buyers additionally nervous. The market tends to go quiet as we enter November and December, even in “good years”, with the next burst of sales activity normally beginning again after the Super Bowl.

With prices declining and buyers nervous, it’s actually a good time for those who are a little more risk tolerant to buy now. This is especially true for investors as the demand for rentals is high and rents are climbing while sales prices have dropped. If you would like to investigate the possibilities of buying or selling, please call or email me today.