Observations On The Market
In 2006 our local real estate market altered from its standard course. After 4 years of strong double-digit price growth and record volume of transactions the market took a pause. We spent much of the latter part of the year explaining to all that “the jury was out” on what the market was doing and what direction it was going to head. From our perspective that picture seems to be a little clearer now.
We tend to look at the market in a couple of different ways. Firstly there is the volume of transactions. Volume for the overall market dropped significantly from the record levels of 2004 & 2005. A quick look at the following table shows the effect on the central Peninsula cities ranging from Mountain View north to San Carlos.

The volume of transactions is important because it has a significant impact on the economy. Real estate transactions free up capital locked in housing and create additional “churn” in the market with purchases of durable goods and other services. The change in volume also has a “housecleaning” effect on the number of active realtors in the real estate industry. But what is more interesting this year is what has happened to prices.
I am loath to look at the median prices by city as the statistics are usually skewed due to the small sample size. Our experience in the day-to-day behavior of the market showed the pattern. The first quarter of the year saw the typical jump over 2005 prices. This time it was in the 5 – 7% range. Buyers were competing fiercely for almost every property. In late April the prices peaked. For the next 60 days the only market segment still operating normally was the under $1,000,000 market (which incidentally continued to grow throughout the year). The remainder of the market more or less took a pause.
After this 60-day period the market reestablished itself at 8-10% below the April peak. The market was very price sensitive. If list prices were at the April prices there would be no activity. But 8-10% below this mark there were buyers eager to act. It appears to have taken until late October, early November before sellers got a solid understanding of this pattern and now the market looks like it has returned. Transactions are now consistently occurring throughout all segments of the market at late 2005 price levels.
The impact of this market dynamic is that people who are looking to move up into a larger house are in the strongest position they have been for years. The under $1,000,000, maybe under $1,200,000 market is solid, but above this price point there is often room to negotiate. Giving up a theoretical $80,000 (8% of $1 million) on a sale but getting a theoretical discount of $160,000 (8% of $2 million) on the purchase puts you ahead of where you would have been in April. We have had great fun helping people with this move through the latter part of the year.
Interestingly, as far as the global market is concerned, Duncan reminds us often that this correction pattern is very similar to what happened in Australia in 2004 and in London a little earlier than that. Both markets have been relatively flat since that time, but have not dropped further.

Our prediction for 2007 is that the market is most likely to move back up to the April 2006 price levels but that volume will remain at 2006 levels. The fundamentals of the market remain strong. We have a dynamic economy that is still hungry for workers. We have no space left to add significantly to the housing stock on the Peninsula. The cost of money remains very low by historical standards. The wild card is consumer confidence.

My boyfriend Greg and I have been on several adventures this year…we love to travel and see new places! In August, we went to Waikiki, Hawaii. We dove right in and did the “touristy things” like snorkeling in Hanauma Bay, a helicopter ride over the island and driving up to the North Shore…And we enjoyed every minute of it.
In November, we went to Vancouver, Canada. Although it was quite chilly there, we got lucky and had a few days of sightseeing without the rain. Being the hockey fans that we are, we checked out the Canucks vs. Blues game.
Thanksgiving was a special day for both of us this year, as we wanted to find a way to combine our family celebrations into one. We ended up with 32 people at my parent’s house in San Jose. Despite the enormous amount of people and food…the event was quite successful and was an important way of celebrating all that we are thankful for.
In terms of the business end, a few of my friends have become clients of ours and I’ve enjoyed helping them as “first-time home buyers.” Having the opportunity to show them property and walk them through the buying process was a great learning experience for me and I look forward to helping others in 2007. I hope everyone has a safe and Happy New Year with their families and friends. Cheers!

photos

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Duncan in the Scottish Highlands

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Jean and Brendan visit Washington, D.C.

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Greg and Jaime take a break while wine-tasting