Monday, November 30, 2009

Mortgage rates at record low, but will that help Los Altos?

The SJ Mercury News printed a story about the new record low interest rates and their impact on sales. The story is here:

The drop in interest rates is great for homes with conforming loans of $729,750 or less. There are only a handful of condos in Los Altos that meet that requirement so the impact on the local inventory is minimal.

However, the low interest rates do help the high-end indirectly by clearing inventory in nearby markets such as Mountain View, Sunnyvale, and Menlo Park. As low-end or mid-market inventory drops, confidence grows with buyers and sellers in the high-end. As that grows, more lenders will enter the high-end lending market.

Jumbo mortgages have always been expensive and that still holds true today. One major issue with the mortgage crisis has been a reduced number of lenders willing to do jumbo loans. Because there is little competition, there is no incentive to reduce rates. That should all change as the market tightens up.

So, the real benefit of dropping rates and a strong market is an eventual increase in jumbo lenders. When that happens, the Los Altos market might really take off again.

Monday, November 23, 2009

Silicon Valley median price up, Los Altos down!

A few days ago, the SJ Mercury News reported yesterday that the median home price in Silicon Valley increased for the first time in 2 years to $550,000 up 6.7% from October 2008. This is great news for the market in general and ultimately helps Los Altos and surrounding markets.

However, the median for Los Altos homes in October 2008 was $1.603M versus $1.580M in October 2009. That's down 1.4%.

The interesting aspect of that drop is that the percent of listing price received went down from 98.8% to 94.5% across those same periods. The number of homes sold in October 2008 versus October 2009 was 18 and 25 respectively. That's an almost 40% increase in sales volume. Bottom line: Los Altos sales are strong but medians are taking a small hit.

Overall, Los Altos has seen the median sales price rise quarter over quarter since the start of this year going from $1.5M in Q1 to $1.6M in Q2, and $1.7M in Q3. I believe we'll see a small rise in the median for Q4. After that, I think the median will remain flat in Q1 2010 as the market closes out old inventory and new inventory doesn't really start to come on until February.

Here's the original SJ Mercury article:

Thursday, November 19, 2009

More foreclosures in the high end...?

The number of foreclosures in Los Altos, Los Altos Hills, and Mountain View are small compared to other harder hit areas such as San Jose, Milpitas, and East Palo Alto. However, those areas had mostly subprime loans.

The story now is that prime loans going into default have increased (in Q3) to 33% of all defaults versus 21% for the same quarter in 2008. The primary reason for this increase: unemployment.

In general, the Los Altos area is less at risk for completed foreclosures (trustee’s sales) because turnover of properties is well below lower priced markets such as Mountain View. Most homeowners in Los Altos bought with 20%+ down and/or have been here so long their equity allows them to borrow in hard times or sell before getting into a default situation.

However, there are exceptions. One Notice of Default was placed on a Los Altos property with a $1.5M loan. The value of the property is close to that amount so the owner may try to sell in the open market or attempt a short sale.

There were four (4) other homes that received a Notice of Default in October. All have loans under $1M with fair market values well over that amount. So, while we may see more defaults in the area, I believe we'll see very few actual foreclosures or trustee's sales. Currently, there are no listings for these types of sales in the area.

If the “in default” condition is temporary and you can catch up with your payments, of course it's in your best interest to do so. However, if you're a homeowner with plenty of equity and fall behind in your payments, sell before the default process goes too far. You're better off saving your credit by selling -- it will be less painful than foreclosure.

Here are the original articles from the SJ Mercury and MSNBC respectively:

Tuesday, November 17, 2009

How much damage can discount brokers do?

Plenty, when all things are considered. Basically you get what you pay for.

Discount brokers include those companies who offer rebates from commissions (e.g. Redfin) or simply discount their commissions to 1.5%. They got a lot of visibility during the boom times in real estate because buying and selling homes didn't appear to take that much effort. You put a house on the market and it Lots of new people entered the business hoping for easy money and most of those are gone or struggling, just like a lot of discount brokers. Companies that have been in and out of bankruptcy include Help-U-Sell, Iggy's House, and others.

Why do they fail or have trouble? Basically it comes down to simple economics. The public doesn't know that to effectively market a property costs thousands of dollars. For example, Redfin says they'll take photos and put the home on the MLS. However, other work such as sprucing up a house (paint, gardening, etc), creating professional flyers, creating and publishing ads in local papers, sending eflyers, sending postcards or letters to the neighborhood, and more all cost hundreds or thousands of dollars that you pay.

Now, assume you sell a $1M home at 3% and the agent sees $30,000. A top producing agent gets 80% of that or $24,000. Take out the cost of advertising the home - say $2000 (flyers, a couple of print ads, photos, etc). You're left with $22K. Most agents spend 20% of their income on personal marketing so that's about another $5K. You're left with $17K. Now, take out taxes, insurance, and other essentials and you're left with half that - about $8000.

The agent is supposed to live on that money for at least as long as the time it takes to advertise and close the deal - about 30 days but probably longer. Let's say 60 days. That means the agent is earning about $4K per month after taxes and costs - not exactly a fortune.

Now, cut that in half and you'll see why discount brokers come and go. You can't live on the money. It all looks great for the consumer but consider what you get. Is the person starving for a deal going to look out for your best interests or get you the best price? Ask a discount broker these questions:

- Do they really know the area? Are they local or 20 miles away?
- Do they know the agents in the area? What's their reputation? Networking sells homes - trust me.
- Do they personally hold open houses or someone else (like the owner)?
- Do they tour the properties in the area and know the inventory?
- Does their company have marketing relationships? Coldwell Banker is aligned with Trulia and others to market your home online better than anyone.
- Can they advise you on how best to present the home with updates and staging?
- Can they recommend contractors to do needed work?
- Will they coordinate all this marketing, prep work, etc?
- How much advise will they give when negotiating an offer? Will they take as much time is as needed?
- What expertise do they have to offer on negotiating strategy? Can they deal with contingencies, multiple counters, financing issues, etc?

I could go on and on but the point is that discount brokers and agents often lack the quality necessary to close a deal, especially in good areas. It is rare to see any of these companies working in Los Altos. There have been a few and usually in the boom times. In general, the most they can offer is to hopefully save you a little money. However, I always like to ask this question:

If an agent can't defend their commission, how can they defend your equity?

The answer is, they can't.

My advice is to stay with a full-service, professional agent who knows the area and has strong connections. Preferably a Realtor - more than just an agent or broker.

Monday, November 16, 2009

Downtown Los Altos improvement plans - the town will change

For those of you either looking at moving to Los Altos or living here now, the town has always had an issue with being too "Mayberry". It's a nice, small village but way to quiet and lacking the lively feel of Mountain View, Los Gatos or Burlingame. The town has been making efforts to increase business, reduce vacancies, and liven up the main business areas.

As part of that effort, the town is moving ahead with plans to redo critical intersections and streets to widen sidewalks. The objective is to make downtown Los Altos more "walkable".

The plans are here.

There are other discussions happening as well including converting some of the city owned parking into mixed use (retail/residential) over underground parking garages. GreenTown Los Altos has been spearheading an effort to leverage that concept one step further and make Main Street a "no car zone" with 3-4 story buildings, higher density housing and retail, as well as wider sidewalks with outdoor dining.

A story was run in September in the Los Altos Town Crier. You can read it here.

As the economy improves, we'll start to see some of these plans come to pass which will make Los Altos an even more desirable city than it already is.

Friday, November 13, 2009

Foreclosure sales up, affordability down

That headline deserves a big "duh!"

The SJ Mercury reported yesterday that Silicon Valley foreclosure sales rose 15% in September and that Q3 affordability is down to 53% from 58% in Q2. Why? Prices are rising as low-end inventory is sold. New homes comes on and the prices are going higher.

This is in line with what I posted yesterday showing that sales volume is increasing and that in Los Altos, prices are rising.

The other factor is foreclosures - not much of an issue in Los Altos. There have been 17 Notice's of Default filed in Los Altos since January 1st. Most of those have been sold in the open market or resolved the issue with the bank. Only three (3) homes have become bank owned (or REO) in the same period.

Foreclosures increasing - I'll say no for two reasons. One, as values increase homes that are "underwater" drop - especially at the low end where prices are rising. Two, the stock market recovery means that people who had lost money earlier this year can sell assets to cover costs. When the DOW hit 6,547 on March 9th, a lot of people had investments so far underwater they couldn't sell to cover living expenses mortgages. Now that we're at 10,000+ they can.

My call is that we'll see fewer foreclosure notices in Los Altos and the surrounding area in 2010.

Here's the original SJ Mercury article:

Thursday, November 12, 2009

One in 20 will buy next year because...we've bottomed out

I read an article that combined positive prospects with negative spin. The article states that 5% of the population intends to buy a home next year. This is down from a March survey and up from the June survey.

The good news is the primary reason why people will buy...because they believe we've reached the bottom. That's true. Most Realtors in this area would say we reached the bottom in February. Some think we still have a ways to go, especially at the high end.

In Los Altos, number of closed sales is accelerating. In Q1 2009 we had 27 closed sales. In Q2 we had 75 and in Q3 we had 87. The median sales price rose from $1.4M in Q1 to $1.6M in Q3. The low end is getting sold out and fast. As that happens, we should start to see more activity in the mid-range and high-end.

In Mountain View, sales are also accelerating and the low-end is driving it. There were 20, 76, and 82 closed sales in Q1, Q2, and Q3 respectively. The interesting thing about the sales is that median sales price has dropped from $1M to $860K from Q1 to Q3. That means more low priced properties are selling. Inventory is dropping as well.

So, we've most definitely reached the bottom. Now, can we sustain growth going into 2010. I think we will. I'll bet we see a much stronger than average Q4 and Q1. Maybe I'll make a few predictions for 2010 when we get closer to the end of the year.

Here's the original article from the SJ Mercury:

Wednesday, November 11, 2009

Home price rally in Q3? Yeah right...

The National Association of Realtors reported yesterday that the national median home price was up in Q3. At the same time, the article points out that 1 in 5 homes are still underwater - at risk of foreclosure.

The rally is still at the low end of the market which is still a bit of a problem when applied to the local area. The median in San Jose, at $566,000, makes us the most expensive metro area in the U.S. However, that's off 12.9% from last year.

In Los Altos, Los Altos Hills, and Mountain View the medians are up or down depending on where you are in each town and what price range you're in. For example, the median sales price in the "South of El Monte" area of Los Altos was $1.770M in Q3 2008 and was $1.549M in Q3 2009 - a decline of about 12.5%.

Compare that to the "Country Club" area which saw it's median go from $2.195M to $2.750M and it looks like the market is doing great.

I've never been a fan of using median prices. They're especially deceptive when very little inventory moves - a common issue in high-end markets. I'm more inclined to like the average selling price (ASP) metric.

When applied to the aforementioned areas, the Country Club saw its ASP increase about 10.5% and the South of El Monte area saw its ASP drop about 8%. See the difference?

For Los Altos overall, the ASP is down 14.7% in Q3 2009 vs. Q3 2008.

Here's the original CNN Article:

Monday, November 9, 2009

Possible new bond for schools...why?

The Mountain View/Los Altos Union High School District is considering a new bond of $45 million to pay for improvements and expansion of the two high schools - Los Altos High School and Mountain View High School. The district has a continuation school for troubled students that isn't included in the list of improvements.

The story is on the Los Altos Town Crier. website.

The gist of the story is that the district expects to see 900 more students over the next 10 years, an increase of 25% from now. They also want to improve energy efficiency. I have two questions; why is this not done via a parcel tax and why does the construction cost so much?

Let's do the math of building new classrooms. Assume the average classroom is about 1000 sq. ft., holds 25 students, and you'll need 36 classrooms to hold all the new students (a total of 36,000 sq.ft.). The average cost to build a commercial building is about $200 per sq. ft. (click here for details). That means the cost to build those classrooms should be about $7.2M. So why are they asking for $45M? I understand the cost of financing has to be factored into the payments, etc but it seems to me that the district could do a better job of investing taxpayer money.

Now, to the issue of going the parcel tax route versus a bond. The Los Altos School District (which administers elementary and middle schools) has a $597 per parcel tax they use to fund provide basic education, add or improve programs, buildings. The district gets about $7M per year - enough to cover building the HS District classrooms! So, my thought is this, why not have the high school district create an ongoing parcel tax and manage this as a slow growth project instead of all at once. Could we save money in the end?

I think the district should rethink how they're raising and spending this money. What do you think?

Friday, November 6, 2009

Market Update - Los Altos, Hills, and Mountain View

Today is tour day and we're really light on new listings which is typical this time of year. Here are the stats:

Tour Inventory
Los Altos: 6 new properties, 5 retours
Los Altos Hills: 0 new properties, 0 retours
Mountain View: 3 new properties, 5 re-tours

Overall Inventory
Los Altos: 91 homes and condos vs. 94 last Friday
Los Altos Hills: 54 homes and condos vs. 55 last Friday
Mountain View: 96 homes and condos vs. 109 last Friday

So, inventory is dropping nicely which is normal this time of year. In Los Altos and Mountain View, those drops are due primarily to sales. However, in Los Altos Hills a significant amount of inventory was taken off the market and will likely come back next year.

There are still price reductions but not many. Of the homes being re-toured in Mountain View only 1 had a price reduction. Of the homes being re-toured in Los Altos, 4 had price reductions. The average of those price drops is 14% which means those sellers are serious about selling. In all fairness, the price drop on 75 Coronado Ave from $4.995M to $4.188M is really just to bring it in line with the market anyway. The original price should never have been that high.

Wednesday, November 4, 2009

Curious about the crime rate? Check here...

One of the biggest impacts on real estate values is the local crime rate. The higher the crime rate, especially violent crimes, the lower the property values tend to be. Los Altos has an extremely low crime rate, especially violent crimes. However, it isn't up to your Realtor to simply tell you so. You have to do the homework.

So, to make it easy I've selected two of the best sites for crime statistics and provided links for the three closest cities. As you'll see from the data, we're pretty safe around here. shows the crime rates as well as a nice map feature that shows where the safest neighborhoods are. shows specific crimes by the location at which they occurred which is handy for anyone wanting more detail.

Of course, you can always visit the Los Altos Police Department online for information as well.

Los Altos
Crime for Los Altos

Los Altos Hills
Crime Reports for Los Altos Hills

Mountain View
Crime Reports for Mountain View

Tuesday, November 3, 2009

Los Altos short sale update

As of today there are 9 active or pending properties in Los Altos that are either short sales or bank owned (REO). Of those, 7 are single-family homes and 2 are townhouses/condos. The best deal in the bunch is a 3078 sq.ft. home on Lincoln Ave that went pending with a price of $799,000. That's an incredible deal in Los Altos, even though the home needs significant work to become "livable".

The one short-sale property that stands out the most is on Miramonte Avenue. This home was purchased to be flipped and all sorts of things went wrong in the process. First, it was purchased in April 2006 for $1.595M (now listed for $1.490M) and it wasn't back on the market until December 2007. That's about 1.5 years to remodel the home (way too long). Having done full home remodels myself (and I mean gutting them), the fastest I've done was 40 days. If you know what you're doing and plan well, you should target 60 days or less to completely remodel a home to flip.

Second, the starting price on the home was $2.95M for a home with only 2,688 square feet. Way too high! A completely new home up the street (literally) with 3,560 square feet sold for $2,495,000. That's about $700/sq.ft. Translated into the short sale on Miramonte the value is about $1,882,000. The seller priced the home wrong in the first place and as a result is now forced into a short sale.

This short sale sends a poor message to the market. While it looks like the home has taken a huge price reduction, in reality it is priced about 20% below what the value should have been in the first place vs. about a 50% price drop from the original list price. The perception of a huge price drop is not in line with reality.

When looking at short sales in Los Altos, consider that the price will most likely still be in line with nearby comps and don't expect a fire sale. I'll address the trends for the overall number of short sales in Los Altos and Los Altos Hills in future posts.

Monday, November 2, 2009

It's the economy stupid - 2009 redux

There were a flurry of positive economic reports in today's news including these tidbits:

- The pending home sales index rose 6.1% in September, 20% higher than September 2008
- Construction spending rose .8% in September driven by the strength in home building

Here are two reports on those figures:

So what does this mean for the local market? Continued strength in sales and pricing with less erosion, lower inventory, and faster sales. Here's the inventory picture for 2009 vs. 2008 as of this morning:

CityOct 2009Oct 2008Sept 2009
Los Altos708677
Los Altos Hills565064
Mountain View496661

So in general, the overall market is stronger this year and even month-over-month as the economy continues to build strength. There's a certain level of seasonal sales activity as people try to close deals before the holidays and some strength in Mountain View is driven by the $8000 tax credit that expires November 30th. However, overall we're getting to a "normal" market.

That said, I find it annoying that buyers and their agents are still trying to press hard for price reductions when a property is already priced in line with the market. There are several properties on the market that are at or below nearby comps and yet offers are coming in 2-5% below the list price. When the agents are pressed to make an offer, they balk with excuses of "we don't want to compete, etc".

I think the writing is on the wall for buyers, especially in the entry-level market. As inventory drops, the need and willingness of sellers to negotiate drops as well. That means more competition and buyers end up paying list price or more. My advice to buyers is to take advantage of the low interest rates and good inventory while you can.