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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.)

 

COE Date Sale Price $ per SF
12/3/2008 $523,000.00 $450.47
5/23/2008 $645,000.00 $555.56
12/14/2007 $660,000.00 $594.59
6/29/2007 $685,000.00 $592.56
10/16/2006 $690,000.00 $594.32
3/31/2005 $640,000.00 $574.51
12/31/2004 $630,000.00 $542.64
8/19/2004 $555,000.00 $478.04
3/26/2004 $525,000.00 $452.20
3/16/2004 $543,000.00 $467.70
10/31/2003 $477,500.00 $412.71
7/2/2003 $449,850.00 $387.47
10/31/2002 $513,000.00 $427.50
7/26/2001 $424,950.00 $381.46
11/22/2000 $502,000.00 $434.26
10/4/2000 $425,000.00 $367.33
9/27/2000 $457,500.00 $412.16
8/11/2000 $419,000.00 $377.48
6/22/2000 $456,000.00 $392.76
5/5/2000 $470,000.00 $423.42
6/1/1998 $299,900.00 $269.21
5/7/1998 $308,000.00 $277.48

 

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):

 

COE Date Sale Price $ per SF
1/6/2009 $1,075,000.00 $460.78
5/9/2008 $1,240,000.00 $533.79
7/19/2007 $1,285,000.00 $642.50
5/8/2007 $1,095,000.00 $492.36
10/18/2006 $1,195,000.00 $590.12
6/19/2006 $1,198,290.00 $582.83
5/31/2006 $1,289,000.00 $592.92
11/4/2005 $1,130,000.00 $546.42
10/26/2005 $1,045,200.00 $498.90
9/2/2005 $1,070,000.00 $449.20
3/8/2005 $1,185,000.00 $506.41
1/6/2005 $1,205,000.00 $523.91
5/28/2004 $875,000.00 $393.44
5/18/2004 $860,000.00 $373.26
4/22/2004 $1,185,500.00 $555.01
3/3/2004 $935,000.00 $419.66
5/30/2003 $890,000.00 $397.50
5/23/2003 $809,500.00 $399.75
5/28/2002 $879,000.00 $419.57
12/20/2001 $635,000.00 $285.01
5/25/2001 $865,000.00 $429.49
3/23/2001 $927,000.00 $445.89
9/14/2000 $950,000.00 $411.08
9/8/2000 $700,000.00 $334.13
4/6/2000 $750,000.00 $321.20
12/23/1999 $610,000.00 $277.27
5/13/1998 $615,000.00 $299.12

 

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.