Careful about what you read in the papers!! It's rather confusing when information is based on median prices. Note the comments from Chris Trapani, CEO of Sereno Group Real Estate about the latest statistics for Santa Clara County end of 2-09 to 2-11. It's all about those strong micro-markets - location, location, location! Statistics are available for those micro-markets which are easy to provide.
1. Median Price- The Median Price decreased slightly from $464,000 in January to $435,000 at the end of February this year. February 2011's median price is lower than the same month last year ($493,250) but higher than February two years ago ($421,000). Based upon increasing sales activity moving into higher price ranges, we anticipate reaching a two year high in the median at some point as we move through 2011. As an indicator, we have and are participating in several sales in the $3M to $8M range as we close out Q1 and move into Q2.
2. Supply&Demand (Units)- We are now beginning to see trend variations and balance in the two year comparisons as we have observed for the past 12-18 months; Here is where we stand in making the month over month/two-year comparisons (February 2009 versus February 2011) in the following categories; For Sale (supply/inventory), Under Contract (pending sales) and Sold (closed escrows). When we compare 2009 with the same month in 2011 we see the following- For Sale properties/supply are down by 18.1%. The number of under contract properties (pending sales) are down 10.2% and the sold/closed escrows are also down 10.9 %. I also want to reiterate that year over year under contract properties (for February) continued up significantly; in February of 2010 there were 1173 under contract/pending sales, this February there were 1631 pending sales at month end!
3. Month's Supply of Inventory (MSI) & Days on Market- The overall Months Supply of Inventory (months of inventory available based on the total existing supply divided by the rate of sales) remained @ a three to four year low at 2.4 months supply at month end, down from last month's figure of 3.1 (and nearly 1/3 the level of Feb 09/7.1 months supply). Days on market is beginning to decline and normalize in the 75 day range, down from a peak of 80 days in January. The Month's Supply of Inventory is one marker that should be given particular attention as the lowest month's supply in several years is being met by increasing buyer demand in a variety of price ranges.
4. Sales Absorption- The Absorption metrics are compelling to note with the comparison of February 2009 vs February 2011 showing under contract properties up considerably @ 11.4% and closed/sold escrows also up 3.6%. 26.8% of the active properties/listings were under contract at the end of February, which is up substantially from 21.9% in January and 16.1% in December of 2010 (and higher than Feb 10/17.8% and Feb 09/11%). This percent under contract figure is another key marker to pay attention to. As I have suggested in our sales meetings, this is the highest percentage of active listings we have seen under contract in over 2-3 years. Additionally, it has been suggested that 25% PUC is the mark of equilibrium in the Bay Area real estate market and we have now crossed this chasm in Santa Clara County. This is the point of balance where we are no longer in a buyer or a seller's market.
As we illustrated in the last several reports of 2010 and in January of this year, we continue to experience increased buyer and sales activity through Q1 of 2011. This momentum and level of new sales activity has not been seen in four years (since 2007). The greatest distinction this year from Q1 of 2010 is the significant sales pipeline in terms of the number of pending sales.
Much of this increase in activity is being driven by an economy that continues to accelerate, record profitability for many companies (specifically the technology sector which has a tremendous impact on Silicon Valley), the climbing/steady stock market (see Bloomberg link below: Stocks Rise as Payrolls Beat Estimates; Gold, Debt Risk Decline) as well as extended tax cuts that run through 2011 and 2012. US stocks continue to gain following job growth that is exceeding forecasts along with manufacturing expansion that is close to a seven year high (see Bloomberg article links below). Furthermore, this increased productivity and confidence continues to be met with historically low interest rates, more realistic prices/valuations in many segments of the market and a very low supply of inventory as illustrated in our statistics above.
The two real estate data points that we are focusing on in the Bay Area this year is the month's supply of inventory (MSI- which is at two+ year lows) and the percent of active listings under contract (PUC) which is at a three-year+ peak. In a supply and demand market such as real estate, the formula is simple; when you combine these statistics with increasing buyer demand and activity, the result will be a robust market and the beginnings of price appreciation.
We are presently forecasting 20% increase in overall sales volume for 2011 over 2010. I anticipate that prices will remain mostly flat/stable/slightly rising with a 1-3% plus or minus variation depending on specific market areas, the rate of continued momentum in the economic recovery and several outliers in our valley such as potential liquidity created through IPO's (or other methods within several non-public companies with significant valuations) and a potential influx of REO listings. We are experiencing a much improved market in 2011 which is supported by significant and measurable improvements in our local and national economy.
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