June 20, 2008

Lower Prices Luring Knife-Catchers

(c) copyright, View from Silicon Valley, 2008. All rights reserved.

We couldn't let this pass. Another headline story in the local paper spouting sunny optimism on housing. As we reported last month, the "dead cat bounce" in volume was reversed. Even so, the vested interests in local real estate managed to get a reporter to parrot their "spin" yet again.

Below is the article with our comments and actual statistics embedded.

As usual, we recommend readers understand the actual data beneath the headline "spin" and then draw their won conclusions:

* * * * * * *

Lower prices luring home buyers in Silicon Valley

SUPPLY OF AVAILABLE PROPERTIES IS FALLING (<-- but still up 43%+ y-o-y!!)

By Sue McAllister
Mercury News

Article Launched: 06/19/2008 01:30:35 AM PDT

Far fewer homes sold last month in Santa Clara County than in May last year, and median prices fell 12 percent. But amid the grim figures may be a glimmer of good news.

Sellers and buyers are striking as many deals now as they did in 2005 at the height of the boom, according to data from local brokerages, and the number of homes for sale in the county has been falling steadily - not at all typical for this time of year.

Real estate information firm DataQuick Information Systems reported Wednesday that the sales of 1,040 previously owned single-family houses closed escrow in Santa Clara County last month, up from 924 in April, but down 27 percent from May 2007. And the median price paid for those houses was $696,500, down 12.3 percent from $793,750 a year earlier.

The figures will strike some homeowners - loath to see their property values fall - as somber. The bright side is that the Silicon Valley market has sped up recently. More houses are selling, and the supply of homes on the market is falling.

"We're getting more consumers putting deals together," said Dave Walsh, president of the Santa Clara County Association of Realtors. "It does not mean that the market has bounced back. What it means is we're not in a softening market right now. (But didn't they just tell us prices, and sales, were down y-o-y?) Prices are fair, the affordability indexes (at San Jose's $72K median income, the multiple of median prices to income fell from nearly 11x to "only" 9.67x. Didn't the rule used to be 2.5x or 3x income was the maximum house price you could afford?) are more in line, and more people can qualify for mortgages now. Buyers are still very choosy about what they pay. They're not willing to overpay."

The numbers tell the story:

• For each of the past four weeks, more than 300 houses a week found buyers and went into escrow, the first time that's happened since May 2005. (Keep in mind "went into escrow" is different than "closed escrow." If there aren't 1,200+ sales next month, you'll see the difference.)

• An average of 41.8 homes sold each day in the five weeks ending June 5, faster than the year-ago pace of 34.4 sales a day, and about equal to the June 2006 pace of 41.5 a day. (Wait a minute. "(F)ive weeks ending June 5," is effectively April and May. How is that a valid y-o-y comparison to June, 2008?)

• There were about 7,140 houses and condos for sale in Santa Clara County on Wednesday, down from a peak of just under 7,600 in mid-May. In normal years, the inventory of homes for sale continues to rise in June and into the summer. (We know the volume of May, 2008 single-family homes for sale was +53% y-o-y. The June, 2008 figure checks in at +43%. Does that sound like declining listings volume to you? BTW, the May-to-June, 2008 change in single-family home listings was -1.4%.)

"Those are great numbers, from where we've been," said Fred Hibbert, manager of a Coldwell Banker realty brokerage in Los Altos. ("Where we've been" is the lowest sales in 20+ years. Let's not confuse a dead cat bounce with any kind of actual strength in sales.)

The data, gathered from local brokerages, has some market watchers hoping that more sales than normal will close escrow in the typically slow months of July and August. ("Hope" is good. Nothing wrong with "hope," as long as we also understand the "risk" of further weakness...)

Parag Panse and his wife made an offer to buy their first house - a four-bedroom in Sunnyvale - last week. Renters in Sunnyvale, the couple almost bought a home in 2003 and again in 2005. They finally took the plunge, after painstakingly researching the market and increasing their estimate of what they'd have to pay for a home in the Cupertino school district. They beat out six other potential buyers and hope to move in during July. Sunnyvale home prices, he said, have flattened since he began his search three months ago.

"It's a home that I am buying, so once I have done that, I will not be looking at the price" he said, referring to whether his new home will gain or lose value in months or years to come.

Buyers' pursuit of discounted, previously foreclosed properties is also part of what's led to the recent acceleration of sales.

DataQuick's figures show that 14.3 percent of all home sales in the county last month were properties that had been foreclosed upon sometime in the previous 12 months. That's up from 1.4 percent a year earlier. (Let's see, 14.3% of 1,040 May, 2008 sales is 149 houses. If you back 149 foreclosures out of May's figures, we're back at a 20-year low in volume (i.e., 891).)

Across the nine-county Bay Area, 26 percent of the homes that changed hands in May had been foreclosed upon sometime in the past 12 months. In May 2007, only 3 percent of sales were previously foreclosed properties.

Howard Bloom, an agent with Intero Real Estate, said he recently listed a fourplex in San Jose's Berryessa neighborhood, a bank-owned foreclosure priced at $759,000. The property got more than 12 offers and will sell for about $100,000 over its list price, he said. "It was a pretty attractive price. The phone was ringing off the wall," he said. (Will it be cash flow positive at $850K? Does each unit rent for $2100+? Our quick check finds the going rate may be on the order of $1650.)

Across the Bay Area, home sales last month were sluggish enough to make it the slowest May in DataQuick's records, which go back to 1988. A total of 6,216 new and resale houses and condos sold in the region, down 1.5 percent from 6,310 in April and down 23.1 percent from May 2007.

Based on historical averages, sales are still about 25 percent lower for this time of year, said broker Richard Calhoun of Creekside Realty in San Jose, who tracks local market statistics daily. But, he said, that's better than 50 percent lower, which is where home sales were as recently as early February. (Our records show February ended at -38% y-o-y volume. If you back out the 26% of sales that were foreclosures, current sales figures are just over -50% y-o-y! Does that sound like a "recovery" to you?)

On a side note, in April, 2008, Santa Clara County reported 1,412(!!) notices of default and 500 foreclosure sales. When you note DQ's monthly stats implied only 149 foreclosures (reported above) were sold to users, you quickly realize the "other" 351, or 70%(!!) of "foreclosure sales," were to banks. It should be "interesting" to see how happy all these knife-catchers are as the other 70% of the foreclosed houses start to hit the market...

DataQuick said the typical monthly mortgage payment Santa Clara County buyers committed to in May was $2,873, down from $3,340 in May 2007.

http://www.mercurynews.com/business/ci_9632445?nclick_check=1