Buyers rule as greedy sellers partner with real estate agents trying to squeeze market

By Broderick Perkins
DeadlineNews.Com

Silicon Valley's housing market is suffering from deja vu overload.

Home prices are falling so fast many sellers can't lower selling prices quick enough to keep pace with the plunge.

Greedy sellers, reluctant to initially list at the right price, are partnering with real estate agents who are trying to squeeze a dry market.

Buyers are abandoning the market altogether or gambling they can wait it out until the bottom rushes up to meet their terms.

Sound familiar? It should.

Back to the future

In a vicious 1989 redux, Silicon Valley housing prices are falling faster than they did more than a decade ago when the market crashed taking as much as 30 percent of home values with it.

"Santa Clara County's median price (of single-family homes in closed sales) dropped from $577,500 in January 2001 to $528,500 in July 2001, an 8.5 percent drop in just six months. During the previous slow down, the median price peaked at $237,000 in August 1989 and dropped to $216,000 in October 1990, a 8.9 percent drop in 14 months," said Richard Calhoun, broker-owner of Creekside Realty in San Jose.

Calhoun is also a statistician and author of the Bay Area Real Estate Newsletter -- a compilation of numbers crunched from Campbell-based R.E. InfoLink, the multiple listing service for Santa Clara County and four area counties.

"I believe property values are off more than 20 percent from January's peak. Actual values fall two and a half to three times more than the median price. During the 1989 slow down, median prices dropped about 10 percent, yet property values dropped 25 to 30 percent. Indications are this differential will remain same," said Calhoun.

Meanwhile, lower prices and continued low mortgage rates have begun to push up the number of households that can afford to buy. Affordability jumped from 16 percent of Santa Clara County households able to afford the median priced home in June of 2000 to 21 percent of those households able to afford the median priced home in June of this year, according to the California Association of Realtors.

That's good news for buyers willing to buy in a falling market -- provided they can truly afford prices that remain relatively high -- more than a half million dollars.

High-tech reliance

Economies in Silicon Valley the greater San Francisco Bay Area have fallen on hard times because of a heavy dependence on a high-tech economy that's simply out of steam. Poor corporate sales, lackluster revenues and mounting lay offs have replaced the good times.

Santa Clara County's jobless rate is up to 4.7 percent and for the first time in six years, that surpasses the national rate of 4.5 percent. It doesn't, however, consider the army of independent contractors, consultants and others who are not eligible for unemployment benefits.

Gone are inflated salaries puffed up with stock options, signing bonuses and other incentives. Gone is the "wealth effect" of Wall Street returns once used by more than 20 percent of home buyers to buy a home.

Instead, real estate agents find themselves in the trenches once again telling horror stories that have 2001 shaping up as the harbinger of the latest Silicon Valley housing market crash.

"Some bought the house with stock money and they thought they'd have money forever. Now some of them have lost jobs or because they've had a one-week lay off they are nervous and are selling or they simply over bought and now they are selling. Move-up buyers think their homes are worth what they were at the height of the market. It's come down so much harder than 1989," says Mary Pope-Handy, a real estate agent with Windermere Silicon Valley Property, in Los Gatos.

With prices and values falling, most homes sell for less than asking -- if they sell at all.

Continued: "Deja Vu"

Calhoun says some 1,000 homes sold in July, while another 700 were pulled off the market by sellers dissatisfied with buyers' offers and unwilling to lower prices further. That, perhaps, has artificially depleted inventories recently, keeping prices from falling further, faster.

"For every one house in escrow, there are five that are sitting. That means 80 percent of the houses for sale are just chasing the market or doing nothing," said John V. Pinto, broker-owner of Realty World-John V. Pinto & Assoc. in San Jose.

Too many sellers aren't reacting to real estate agents' advice to quickly and adequately lower prices.

"Agents have the listing so long and they ask for a price reduction that seems appropriate and the seller will only meet you part way. If you need to reduce it by $50,000 and they only reduce it $25,000 and you do that a couple of times, you are chasing the market," said Pope-Handy.

Homes that sell and even garner multiple offers, agents say, are homes priced by savvy, convincing agents who sift through recently closed comparable sales, comparable listings that both are and aren't selling and comparables in escrow. The tactic can actually get a buyer a better price pushed up by multiple offers, agents say.

"You have to be the lowest of them all," says Calhoun.

Unprofessional agents

Pinto says in addition to sellers not responding to expert advice, many agents aren't offering it.

"For every competent real estate agent, you have five or six who are spaced out and either not disseminating competitive market analyses or are misleading the selling into thinking the house is worth more to get the listing with the idea that they'll hit the seller up for a price reduction later. That's a very dangerous game to play," said Pinto.

It may not matter. Buyers rule, as they began to do in 1989.

"I've shown buyers 90 homes and they wanted to come in low no matter what the price was. They are bottom feeders. They don't want to get off the fence because they think, prices will drop more," said Pope Handy.

Chances are, they will.

"I don't like to get into forecasting, but this time of year prices normally do go down. If you look at last year and if the market follows last year we'll be below $500,000 by September. There's no indication this market is improving," said Calhoun.

Published Wednesday, August 15, 2001
• Click Here For The Latest Silicon Valley News