Silicon Valley’s ‘Inverse’ Market Squeezing Buyers, Sellers

High median home prices in Silicon Valley’s inverted housing market
continue to belie soft market conditions, including falling prices,
swollen inventories, and tight mortgage money in some areas.

The median price of single-family homes in closed sales in
June, $867,500, was only slightly off the record high median $868,406
set back in April, according to the "Bay Area Real Estate Market Newsletter".

The newsletter’s data was gathered July 5 by Richard Calhoun,
broker of San JoseHigh median home prices in Silicon Valley’s inverted
housing market continue to belie soft market conditions, including
falling prices, swollen inventories, and tight mortgage money in some
areas.s Creekside Realty, and is comprised of statistics from the
area’s multiple listing service.

The current median is nearly $50,000 more than it was a year ago, but that doesn’t mean Silicon Valley is enjoying a boom market.

Far from it.

The higher median price has been boosted by home sales this year
concentrated in the more expensive housing submarkets where mortgage
money remains more readily available. Buyers looking for homes in less
expensive areas are getting stung by stiffer controls placed on
underwriting, especially riskier subprime and nontraditional home
loans.

The controls are fallout from the force of foreclosures
sweeping the nation. In May, foreclosures were up 90 percent
nationwide, compared to the number in May 2006, according to RealtyTrac.

Along with those losing homes to foreclosure, more are finding
it difficult to buy a home today which they perhaps could have found
financing for a year ago.

It’s not certain how much additional pressure recent federal
rules — effective immediately — will have on the market but federal
monetary regulators’ "Statement on Subprime Mortgage Lending" codified what many lenders had already been doing — tightening the purse strings of risky loans.

Subprime loans didn’t take off in California
like they did in some other states but within some California regions
there are pockets where subprime loans, combined with the also risky
"Alt-A" or nontraditional mortgages, were the financial tools of choice
for the vast majority of home buyers.

"On the East Side, I would say 80 percent, at least," used
riskier mortgages to buy homes said Robert Aldana, a real estate agent
with LetsTalkRealEstate.com in San Jose who works the market.

"It’s killing the market on the East Side. It’s having a worse
effect than people think. A home that was worth $625,000 last year,
right now you are lucky if you can get $575,000. In three or four
months it will be worth $520,000, in some East San Jose, Blossom Valley
and downtown San Jose areas," Aldana added.

Calhoun and others say Silicon Valley’s housing market is behaving in an "inverse" fashion.

"Outer lying affordable areas are slower. As the price goes up
the speed (of sales) of the market goes up. That’s a complete inverse
of a normal market," Calhoun said.

"The low end of the market is what’s really dead," Calhoun added.

For example, as of July 5, the days of unsold inventory (DOI) —
the number of days it would take to sell all the homes available at the
current pace of sales — was 284 days in the East, South and Central
San Jose areas and 254 days in South County (the cities of Gilroy, Morgan Hill and San Martin).

In more expensive markets the DOI ranged from only 28 days in Mountain View, Palo Alto and Los Altos to 79 days in Saratoga and Los Gatos.

The DOI was 42 days in Cupertino and Sunnyvale; 67 days in the cities of Santa Clara and Campbell and the San Jose communities of Willow Glen and Rose Garden; and 125 days in the San Jose communities of Santa Teresa and Blossom Valley, the North Valley region and the city of Milpitas, Calhoun said.

By price, more affordable houses were taking longer to sell
based on July 5 data. The DOI for homes priced from $450,000 to
$600,000 was 188 days; $600,000 to $750,000, 154 days; $750,000 to $2.5
million 83 days; $2.5 million to $5 million, 248 days; more than $5
million 1,330 days, said Calhoun.

Slow sales in large areas pushed inventories up to record levels region wide.

On July 5, the inventory of single-family homes was at 3,972. On
June 30 the number had bulged to 4,072, a peak for the year and highest
number since the market’s record of 4,097 on July 31, 2001.

Last year, June’s inventory of single-family homes was at 3,793, according to Calhoun.

Colleen Badagliacco, broker and co-owner of RE/MAX Valley Properties in San Jose says throughout Santa Clara County it’s not so much the loss of subprime loans as it is the high cost of housing in Silicon Valley that’s put the brakes on the market.

"Tighter qualifying underwriting is slowing things down, but
most of our property at the bottom end is unaffordable anyway. I get a
little distressed when I look at how difficult it is to get into that
first property," said Badagliacco, who is also president of the
California Association of Realtors.

She said in recent weeks her listings have been selling more
often at list or a little above, but that’s likely because sellers have
begun to reduce prices.

"I’m cautiously positive. Last month we had more sales proportionate to the listings," Badagliacco said.

Badagliacco said buyers who can find financing are in a much
better negotiating position than they’ve been in years, provided they
don’t hesitate. Sellers who package their home with the right price,
model-home like condition and a concession or two can still get several
or more offers.

Buyers can also cash in on the less volatile condo market
where inventories were up to 1,604 in June this year, compared to 1,291
a year ago, according to Calhoun. Also, the median condo price in June,
$539,500, was well off the record high of $550,000 set in April this
year.

Said Tony Sum, broker with Silicon Valley
Lofts and Condos, who works Central San Jose’s condo market, "Prices
have decreased but not significantly. The inventory has gone up because
buyers are taking more time to look around now."

"Everyone is sort of in this wait-and-see mode to figure out
what’s going to happen. People are thinking the market is going to slow
down more," Sum added.