Saratoga Condos and Townhomes: The Challenge of Selling Today

by Mary Pope-Handy | Mar 22, 2009 | Condos & Townhomes, Home Types, Luxury Homes, Market Reports, Saratoga

As of today, there are nineteen condominiums and townhomes for sale, and just one pending sale, in the upscale Silicon Valley city of Saratoga, CA.

Homeowners are used to buyers stretching to buy homes their corner of Santa Clara County.  It’s a highly desirable place to live, with great schools, low crime, scenic beauty, character, history, and community involvement.

Right now, though, the hottest segment of the Silicon Valley real estate market is the lower priced single family home market.  Conversely, the coolest part part of the market is the luxury condo market, that is, condominiums and townhouses in expensive areas like Los Altos, Cupertino, Saratoga, Los Gatos and Almaden Valley. Put directly, homebuyers with a  four or five hundred thousand dollar budget can purchase a single family home in San Jose for the same amount that a condo would cost in Saratoga.   The selling challenge appears to be even more acute as the price point rises.  It has been several months since a million dollar townhouse in Saratoga has sold.

A good tool for understanding  the market condition is the rate of absorption, which factors in current inventory levels with sales. The question being answered is this: if no new homes were to come on the market, how long would it take for the current inventory to be absorbed if sales continue at the current rate?  (It can be viewed as days, weeks, or months of inventory.)  For example,  if there are one hundred homes for sale and twenty of them sell in a month, there’s a five month supply of inventory, or five “months of inventory”.

If there are under six months of inventory, it’s considered a sellers’ market. Six months is neutral. More than six is a buyers’ market. Obviously, the higher that number goes, the more extreme the market gets into the buyers’ favor.

Right now, it’s quite acute.

For the last two months in Saratoga, there have been NO closed sales among condos and townhomes. None.  This is almost a total market rejection by consumers – they don’t want what is offered at the prices offered. So the months of inventory would be infinite – if we could graph that. This chart doesn’t do well with intangibles like that, so I’ve plugged in in as if there were one sale in January and February – but there were not. So please envision the last two months as having bars that continue through the top of the chart.  Here’s how the history of the months of inventory in Saratoga look when put into a graph (March 2001 is missing data):

The numbers are from MLSListings, our MLS provider. I did the crunching to get the absorption rate. The information for March 2001 was missing on MLSListings.com for some reason – so you’ll see a gap in the chart where that info belongs.

What’s happening with prices? The peak of pricing was about two years ago, and prices have been dropping since then – if slightly at first, it’s more dramatic now. This has been a very deep correction, and prices have “rolled back” in time a number of years.  For some properties, it’s only to about 2005 or 2006. For others, it’s between 2002 and 2004 prices. Since no condos have closed recently in Saratoga, it’s hard to pin the “rollback year” down. It is, however, clear that buyers don’t like the list prices of the homes for sale – if they did, they’d be buying.

When will it recover? It’s hard to say.  This correction has been deep and it may take a few years to see a recovery.  Buyers will need to feel confident in their jobs, particularly in purchasing a luxury condominium.  I would not expect to see peak prices again for another five years or so, possibly more.