Historic price slump, plunging sales signal start of possible protracted buyer's market

SINGLE-family median home prices plummeted $35,500 in a single month from March to April in Santa Clara County, CA this year -- a fall of historic proportions.

To put it in perspective, the 6.19 percent month-to-month decline in home prices is nearly identical to a year-to-year price drop from 1989 to 1990 -- when Silicon Valley's housing market began crashing into the economic recession of a decade ago.

"That shows the magnitude of it. Everybody acknowledges the year-to-year drop was big. Here, in one month the median price lost the same percentage. Real values have dropped significantly more," said San Jose-broker, Richard Calhoun in his monthly, expanded Bay Area Real Estate Market Newsletter, formerly the Santa Clara County Real Estate Market Update.

April's single-family median of $530,000, was down from $560,000 in April of last year, 2000's highest level, and down from $565,500 in March this year. Prices peaked this year in January at $577,500 before tumbling.

Home sales in Santa Clara County dropped a whopping 39.5 percent in April, 26.3 percent throughout the nine-county San Francisco Bay Area, according to the California Association of Realtors.

The turnabout reveals what's likely the start of a buyer's market. Earlier this year, strong prices thwarted a full-fledged buyer's market even as inventories swelled to historic proportions and demand slumped.

Now, after nearly a decade of skyrocketing prices, multiple offers in the dozens, bids more than twice the asking price and new listings that sold in hours, Silicon Valley buyer's market is returning -- with a vengeance. Widespread dot combustion, growing job uncertainty, decreasing consumer confidence, and just plain weariness about home prices that made buyers gasp have all taken a toll.

"In the San Francisco Bay Area, including Santa Clara County (Silicon Valley), it's no surprise that the market is softer than the state as a whole. It's not just because of the cut backs in dot coms, but prices were so inflated to begin with, it was just a matter of time before it came down to earth," said Robert Kleinhenz, senior economist with the California Association of Realtors.

Deciphering data from Campbell, CA-based R.E. InfoLink -- the area's five-county multiple listing service -- Calhoun says record inventories and anemic demand has pushed actual property values down 15 to 20 percent in one month from March to April and as much as 24 percent so far this year.

Inventories have soared from 978 single-family homes and 205 condos for sale in December to 4,208 homes and 1,247 condos for sale in April.

"The inventory is at all time record high levels, at least as far back as 1984, when comparable records were first kept," said Calhoun, owner of Creekside Realty.

On the demand side, days of inventory (DOI) for single-family homes has more than tripled from 45.5 in December to 144.5 in April. DOI for condos has more than quadrupled from 29.3 in December to 135.1 in April. DOI is a theoretical number indicating how long it would take to deplete the current inventory at the current sales pace if no new homes came onto the market.

"Last year the DOI (in April) was a sizzling 34.6. The DOI increases with higher price ranges. The DOI is 88 for homes under $500,000; 168 for the $500,000 to $1 million range and 244 for homes that cost more than $1 million. Home sales in the $5 million and up price range are dead. With 53 homes on the market and only two homes in escrow, this yields a DOI of approximately 1,000 -- or three years," said Calhoun.

On the average homes sell for only 99.3 percent of the asking price, but some homes continue to sell for more than asking, perhaps an only-in-Silicon Valley phenomenon.

"There is clearly a trend of fewer homes selling for more than the asking price and more homes are selling below the asking price. It is noteworthy, that even in a buyer's market, a significant number (nearly one third) of the properties are still selling over the asking price," Calhoun said.

"If Santa Clara County is near the bottom, it is a great time to purchase, however, if the market continues to fall, waiting will be the correct strategy. Only time will tell," he added.

Published Monday, May 14, 2001, 12:00 PM for RealtyTimes.com

California downturn not likely to be as severe as Silicon Valley's

Chances are, most of California won't suffer the same residential real estate market volatility that's gripping the San Francisco Bay Area.

Real estate markets in San Diego, Los Angeles, Orange County and other areas are experiencing fallout from the softer economy, but not the reversal of fortunes that's reeling the San Francisco Bay Area real estate markets.

All California real estate markets should resume their forward, upward march next year -- albeit more slowly -- after 2001 provides a sharp reminder of just how volatile some of the state's markets can be.

"We've been saying for some time that the real estate market in California would slow down this year and that's definitely happening across the state," said Robert Kleinhenz, senior economist with the California Association of Realtors.

"In the San Francisco Bay Area, including Santa Clara County (Silicon Valley), it's no surprise that the market is softer than the state as a whole. It's not just because of the cut backs in dot coms, but prices were so inflated to begin with, it was just a matter of time before it came down to earth," Kleinhenz said.

Calling the Bay Area markets "softer" may be an understatement.

In Silicon Valley, inventories swelled and demand slumped earlier this year, but rising prices continued to thwart a full-fledged buyer's market until just last month when a record price slump signaled the start of what could be a protracted buyer's market.

Single-family median home prices plummeted $35,500 in a single month from March to April in Santa Clara County this year -- a 6.19 percent month-to-month decline in home prices that is nearly identical to a longer year-to-year price slump from 1989 to 1990, according to the latest edition of the Bay Area Real Estate Market Newsletter. The year-to-year price drop occurred a decade ago when Silicon Valley's housing market crashed into recession along with the state's economy.

"That shows the magnitude of it. Everybody acknowledges the year-to-year drop was big. Here, in one month the median price lost the same percentage. Real values have dropped significantly more," as much as 24 percent since the first of the year, said the newsletter's author, Richard Calhoun, San Jose-broker and owner of Creekside Realty.

The newsletter also said the single-family median of $530,000 in April, was down from $560,000 in April of last year, 2000's highest level, and down from $565,500 in March this year.

Also, home sales in Santa Clara County dropped a whopping 39.5 percent in April, 26.3 percent throughout the nine-county San Francisco Bay Area, according to the California Association of Realtors.

"I don't think we'll see that kind of movement statewide. For the state as a whole, the thing that looms behind it all is the continued shortage of housing. That's always going to loom behind the scenes and prop up prices that would otherwise soften. A lot of people still want to live here and have the wherewithal to do so," Kleinhenz said.

That's not what happened in the late 1980s to early 1990s when Northern California fell first, followed by the rest of the state as employers fled, incomes dwindled, quakes rumbled, sales fell and prices slipped.

What's different this time is that concerns over lost jobs and dwindling stock market returns are largely concentrated in the San Francisco Bay Area.

The April prices aren't in yet for Southern California, but the first quarter revealed double-digit, year-to-year percentage increases in median home prices in some Southern California regions that were larger than those in Northern California, according to CAR.

Meanwhile, first quarter sales were down from the first quarter of 2000 by 18.9 percent in the San Francisco Bay Area, including 28 percent in Santa Clara County, while during the same period sales in Los Angeles fell only 2 percent. Orange County was down 3.2 percent and San Diego 9.7 percent. Santa Barbara County was the Southern California exception. Sales were off 19.5 percent.

Better days are ahead for the entire state.

"Statewide there is a more gradual appreciation. The state is catching its breath this year before resuming growth. It won't be at the high levels of the past few years, but next year it will pick up compared to this year," Kleinhenz said.

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