The Last Days?

July 21, 2006

The Last Days?

Are we in the last days of the Silicon Valley real estate boom? It's impossible to say with certainty but one way to gain insight is looking at the numbers.

Back in March (2006) we documented median house prices in Silicon Valley make most of their annual increases from February to April. We found the six months starting July showed median price changes of:

+0.0% (2003),

+1.6% (2004) and

-0.9% (2005) over the last three years.

So how are prices doing lately?

Re-creating our "The Next 60 days'" table, using the local paper's figures for "Total Resale Homes":

Median +/-$ 2003 2004 2005 2006
January -$4K -$47K -0- +$1K

February     +$7K   +$52K   +$22K   +$17K
March        -$10K   +$39K   +$33K   +$12K
April        +$15K   +$11K   +$17K   -$10K
May          -$4K   +$15K    +$8K   +$27K
June         +$29K    +$9K   +$15K   +$15K YTD= +$62K
July         -$24K -$9K    -$5K
August       +$17K   -0-    +$14K
September    -$3K    +$5K    -$9K
October      +$10K +$5K    +$9K
November     -0- -0-     +$1K
December       -0-   +$10K   -$15K
Total        +$43K +$90K   +$90K

Comparing YTD numbers for the last four years, we find

YTD +/-$ 2003 2004 2005 2006

thru June +$33K +$79K +$95K +$62K

June was solidly positive in all four years. Obviously, +$62K is "better than a sharp stick in the eye," as my grandmother was known to say. However, 2006 is YTD still distinctly weaker than 2004 or 2005.

Building on an item we mentioned last month, let's peek at YTD volume over the last few years.

Resales Sold 2003 2004 2005 2006

June 1,643 2,450 2,175 1,617

YTD 8,898 11,717 10,349 8,027

This month's realtor blurb admits y-o-y volume is down -25.7% but only if you study the accompanying table. The figure does not appear anywhere in their text.

The monthly realtors' blurb only compares current volume to last month and last year. To make thinks a little more interesting, let's invent a "new" statistic "year-over-two-years-ago" or "y-o-2y":

Resale Units 2003 2004 2005 2006 y-o-y y-o-2y

June 1,643 2,450 2,175 1,617 -25.7% -34.0%

YTD 8,898 11,717 10,349 8,027 -22.4% -31.5%

Y-o-y volume is down. Volume in 2006 is running behind even 2003, which was overall a fairly weak year.

We don't have complete data but let's also look at DataQuick's total listings:

2006:

January 12 1,687

February 9 1,818

March 9 2,103

April 9 2,194

May 7 2,606

June 8 2,974

July 6 3,185

A July 20-published quote from Creekside Realty says listings have now increased to 3,400. We also discovered this month professional realtors cite a figure of 4,700 houses for sale.

Breaking down the details:

2005 Peak Since

All Homes Current Peak Date Peak y-o-y

Santa Clara Co.*$681K $670K May 26 xxxx 4.7%

San Mateo Co.** $770K $775K Aug.19 -0.6% 2.6%

Santa Cruz Co.* $700K $720K May 26 -2.8% 0.0%

Resale Homes

Santa Clara Co. $770K $725K May 26 xxxx 8.1%

San Mateo Co. $820K $830K Aug.19 -1.2% 1.9%

Santa Cruz Co. $750K $775K Nov.04 -3.2% 5.7%

*= thru June 23

**= thru June 22

San Mateo and Santa Cruz numbers are much more volatile than Santa Clara County. They bounce, up and down, on lower volume, more than Santa Clara County on a regular basis.

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Re-formatting the tables, the "All Homes" y-o-y figures are:

Santa Clara San Mateo Santa Cruz

County County County

Dec'05 14.8% 12.5% 17.4%

Jan 15.5% 8.2% 13.5%

Feb 14.2% 6.4% 12.6%

Mar 10.2% 3.4% 8.0%

Apr 6.3% -0.1% 11.5%

May 7.0% 3.4% 8.3%

June 4.7%* 2.6%** 0.0%**

*= thru June 23

**= thru June 22

Running the same y-o-y numbers for Resale Homes:

Santa Clara San Mateo Santa Cruz

County County County

Dec'05 16.5% 10.7% 10.9%

Jan 13.6% 10.8% 4.7%

Feb 13.0% 5.7% -0.3%

Mar 10.6% 3.8% 3.8%

Apr 5.1% 2.5% 10.8%

May 9.4% 2.0% 5.7%

June 9.2% 1.9% 5.7%

Even though the Santa Clara median managed a 2% price pop in June, half of which arrived in the last week, volume declined y-o-y and y-o-2y.

Total listings continue appear to now meet and even exceed 2003 levels. If the 4,700 figure is correct, total listings are at 2001 depression-era levels.

Last month the headlines were just starting to admit there may be some weakness in local housing. Instead of another 10% in 2006, they thought we might see total sales flat, or maybe down 2%. "Soft landing" was the message of the day.

This month the headline is, "The Realtors association last month lowered its 2006 sales prediction from a 2% slip to a 16.8% drop."

"(T)he chief economist of the California Assn. of Realtors has stopped using the term ’soft landing’ to describe the state’s real estate market, saying she no longer feels comfortable with that mild label.”

“The Realtors association last month lowered its 2006 sales prediction. That was when Appleton-Young first told the San Diego Union-Tribune that she didn’t feel comfortable any longer using ’soft landing.’ ‘I’m sorry I ever made that comment,’ she said Thursday.”

Does a unit volume decline, or a further unit volume decline, on top of growing inventory, dictate a fall in prices? To think not flies in the face of 100's of years of economic statistics. As always, time will tell.

Bottom Line: Alert readers will quickly note Santa Clara County is currently running -22.4% YTD volume. If volume is to decline "only" -16.8%, this will require a substantial improvement. Given 2H05 volume was already very weak, we have to admit anything is possible.

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The above is not intended as advice to buy, sell or hold any stock, bond, real estate nor any other financial product or service. Buy and sell at your own risk (just like we do.)