Vabrato Real Estate

Unfortunately, the end of this decade was one huge reset button for everything of value. The Down Jones Index started 2000 at around 10,500 and it ended 2009 at around 10,500. The DJI did shoot up to 14,000 in 2007, but that was all wiped away over the next two years.

Similarly, average single-family home prices in San Mateo County started at around $900,000 in 2000 and shot up to $1,400,000 by 2007. However, we closed the past decade with an average home price of about $900,000.

The sale Price for all San Mateo County Single-Family Homes vs. the Dow Jones Index monthly average

SAN MATEO COUNTY
INVENTORY , CLOSED SALES, NEW LISTINGS
& DAYS ON MARKET

Even economists suggest that average household income has remained relatively unchanged for the past decade. January 8, 2010 was also a disappointing day for everyone as we had hoped unemployment was actually about to decrease, but instead there was yet another drop of 85,000 jobs.

The good news for local homeowners was that 2009 ended on a strong note. December home inventories in San Mateo County were about 20% below the past couple of years, but still well above those in the hot seller’s markets. December sales were also strong, 358 homes vs. around 250 for this time of year in both 2007 and 2008. Home prices also bounced back from around $700,000 in December 2008 to $950,000 in 2009. This increase in average value was due to two phenomenons. First, high-end homes were not selling at all in early 2009, but did begin to sell once more towards the end of the year. Despite selling at discounted prices, the mere presence of expensive homes once again in the average price calculation was enough to skew the average upwards.

Second, the start of the year began with the bottom of the market selling like hot cakes, homes in the $300-$500K range were selling quickly and often at 40-50% off their 2007 prices. Multiple offer situations became common at the bottom towards mid 2009 and this market actually increased in price. An increase in value at the bottom was not surprising since it appeared the huge price drop was unwarranted. During this period cash became king at the low-end as investors poured in to purchase many of the cheaper homes, leaving regular home buyers hoping to purchase a home with a loan, out to dry. Many of the cheaper properties were bank owned and banks preferred cash offers, even if they were a little lower, over waiting for a loan that may never materialize.

Overall sales for the year were a little better in 2009 (4,068 homes) vs. 2008 (3,876). This 5% increase in sales was a welcome improvement, but it is still a far cry from the 6,000 homes per year of the mid 2000s. Over all, only about 65% of homes put up for sale in 2009 sold vs. about 85% in years like 2004. In my opinion, price stability depends on this 65% ratio not decreasing too much. The biggest catalyst that could negatively impact this ratio are the inventories owned by banks that are not yet on the market for sale; sometimes referred to as shadow inventories. In Q3 of 2008, shadow inventory was 1.1M homes, in Q3 2009 it shot up to 1.7M. How many of these are in the Bay Area and how quickly will they be put up for sale?

Where does all this go next, as mentioned above, housing inventory will play a significant role, but so will jobs and interest rates. Both are still a complete unknown to anyone offering an honest opinion. While unemployment rates are slowing down in the US, we need about 120,000 jobs created per month just to keep up with the population growth and new college graduates. Yet every month, we have been loosing jobs. As for the future of interest rates, opinions are all over the board. Today, they are extremely low and let’s hope they stay that way for both buyers and sellers.

I do believe the real estate market is at least in a good position to recover if no shocks are applied to the system. The overall 20-30% price drops have made homes much more affordable for buyers coupled with the low interest rates. In addition, the rent vs. own comparison also bodes well for home sellers. Today, with tax savings calculated into the equation, the monthly payment for a homebuyer is not that much more than renting in many cases. Most people will always be willing to pay a small premium to own their home vs. living in someone else’s property.

Although I am optimistic that 2010 will be a stable year for real estate, I am also acutely aware that we are still in a very precarious position, where small increases in inventories or interest rates could further depreciate this market. I’m also at a loss for when the number of homes sold per year will increase substantially? These past couple of years have been devastating for the real estate industry. When you think about it, a 30% drop in prices coupled with about 50% fewer sales, means that the real estate industry lost about 65% of its revenue. That’s a huge loss of income to an industry where most of its participants cannot collect unemployment.

	No. of	Avg. Sale Price	Avg
Year	Closed Sales	Avg. Sale Price	DOM	New Listings
1998	5,746	$520,901	40	7,830
1999	6,434	$620,436	45	7,273
2000	5,659	$838,782	29	6,944
2001	4,740	$791,809	46	8,033
2002	5,951	$787,021	44	8,211
2003	6,454	$805,867	46	8,471
2004	6,564	$957,347	33	7,756
2005	5,877	$1,097,324	32	7,998
2006	5,006	$1,126,572	43	7,723
2007	4,172	$1,209,838	51	7,452
2008	3,876	$1,038,395	71	7,550
2009	4,068	$876,820	72	6,496
Dec-09		$948,117

	Current Inventory	Closed Sales	New Listings	Sales YTD	Listings YTD
This Past Month	1,042	358	284	4,068	6,497
Decade Average	839	414	245	5,379	7,626
% Diff	24%	-14%	16%	-24%	-15%

SAN MATEO COUNTY Graph 1 plots monthly Inventories, Closed Sales and New Listings. This graph is an excellent visual for determining the strength of the real estate market. The graph plots how over the past three years Inventories have been rising as New Listings remained fairly stable and Closed Sales keep decreasing.	Graph 1—Monthly Inventories, Sales and New Listings for Single-Family Homes in San Mateo County

SAN MATEO COUNTY Graph 2 looks at the same type of data as Graph 1, but it compares it from a seasonable point of view. It compares the numbers for the identical month over the past decade. Again, the same trend is visible; New Listings are stable while Inventory is increasing and Closed Sales decrease.	Graph 2—Inventories, Sales and New Listings for Single-Family Homes in San Mateo County for a given month

SAN MATEO COUNTY Graph 3 is a cumulative look at Year-to-Date statistics for Closed Sales vs. New Listings. This graph illustrates how dismal the year to date performance is compared to the previous decade. Listings Year-to-Date remain high while Closed Sales are well below any of the previous years.	Graph 3—Total Single-Family Homes Sold & New Listings Year to Date in San Mateo County

SAN CARLOS
INVENTORY, CLOSED SALES, NEW LISTINGS

San Carlos also ended the year on a strong note like the county. Inventories were significantly better in December 2009 (35 homes) vs. December 2008 (52 homes). The low inventory was partly due to few newer listings making their way to market. This past December, there were only 7 new listings vs. 18 in December 2008. In addition, there were 24 closings in December vs. 14 in 2007 and 15 in 2008. This is a superior performance and more inline with the strong market of the mid 2000’s. However, while many other communities saw a few more units sold in 2009 vs. 2008, San Carlos only sold 236 homes in 2009 vs. 258 in 2008 due to lower inventories. As for success in selling listings, in this instance San Carlos reacted like much of the county, whereas about 85% of listings were sold in San Carlos in the mid 2000’s, only 65% sold in 2009.

The great surprise in San Carlos has been the mild drop in home prices. While many surrounding communities experienced a 30% drop in value, San Carlos has only experienced about 20%. For the year, average home prices ended about $100,000 higher; $900,000 at the start of 2009 vs. $1,000,000 in December. If the $1M average price actually held, that would mean only about a 10% drop in prices for San Carlos, which is a fantastic feat in the economic crisis hitting the real estate market.

Average Monthly Stats for Single Family Homes in San Carlos

	Current Inventory	Closed Sales	New Listings	Sales YTD	New Listing YTD
This Past Month	35	24	7	236	358
Decade Average	37	27	13	355	483
% Diff	-4%	-9%	-46%	-33%	-26%

Yearly Averages for Single Family homes sold in San Carlos

Year	No. of	Avg. Full Year Price	Avg	New
Year	Closed Sales	Avg. Full Year Price	DOM	Listings
1998	368	$518,724	31	610
1999	471	$587,925	40	514
2000	392	$779,513	28	470
2001	340	$701,275	41	589
2002	394	$746,180	39	489
2003	430	$755,217	35	581
2004	419	$901,997	25	484
2005	357	$1,063,365	24	459
2006	296	$1,090,246	32	439
2007	296	$1,138,429	36	381
2008	258	$1,072,498	43	416
2009	236	$928,560	53	358
Dec-09		$1,000,479

Average Monthly price for Single Family Homes in San Carlos

Monthly Inventories, Sales and New Listings for Single-Family Homes in San Carlos

Month over Month comparison of Inventories, Sales and New Listings in San Carlos	Year to Date Closed Sales and Listing in San Carlos

REDWOOD CITY
INVENTORY, CLOSED SALES, NEW LISTINGS

In terms of sales numbers, Redwood City performed about as well as San Carlos for the year, it had 20% fewer new listings in 2009 and sold about 7% fewer single family homes. The stark contrast was price depreciation. Redwood City’s average home price remains about 30% below the 2007 highs, like much of the county. Also, unlike San Carlos, Redwood City’s December sales were only slightly better than those in 2007 and 2008 (40 homes vs. 32 and 35 respectively). December was unusual in that there were 40 new listings, normally there are only about 20-30 in any given December. We will have to see if this is an anomaly or a trend.

Overall, inventory for Redwood City remains high when sales figures are considered. Inventory itself mimics that seen for a couple years after the 2001 stock market crash, but even in those days, unit sales were still 25-55% higher per year than today. For us to return to the 85% success rate in selling listings, we would need to sell approximately 668 homes in 2009 vs. 461; this would be a 45% increase in sales.

Here to, we are at least seeing some stability in average prices and as long as rates and inventory do not go in the wrong direction, we should be able to expect a stable real estate market.

Average Monthly Stats for Single Family Homes in Redwood City

	Current Inventory	Closed Sales	New Listings	Sales YTD	New Listing YTD
This Past Month	129	40	37	461	785
Decade Average	92	53	28	646	948
% Diff	40%	-25%	31%	-29%	-17%

Yearly Averages for Single Family homes sold in Redwood City

Year	No. of	Avg. Price	Avg	New
Year	Closed Sales	Avg. Price	DOM	Listings
1998	642	$455,604	32	985
1999	774	$522,766	39	899
2000	741	$690,829	29	940
2001	581	$674,902	40	1,019
2002	716	$703,877	39	1,026
2003	764	$717,128	47	1,081
2004	781	$839,519	30	907
2005	718	$945,279	24	974
2006	575	$963,185	36	844
2007	507	$1,030,281	37	920
2008	491	$886,530	77	1,017
2009	461	$721,471	73	786
Dec 09		$728,503