Market returns to normal

By Jean Newton

In sharp contrast to the craze associated with last year's on-fire real estate market, Realtors are trying on a different description for size--normal. In spite of recent headlines saying the real estate market is cooling off, most people in the business see the current market as a return to status quo or business-as-usual. Calling the year 2000 a "unique bubble that is unlikely to repeat anytime soon," Silicon Valley Association of Realtors Executive Vice President Penny Pompei believes this year's real estate market looks more similar to the 1998 or 1999 market.

"There's still a huge pent-up demand from people who were locked out of the market last year because of the feeding frenzy created by the dot-com money. Employment is still at 95 percent or better and most two-income households are in the six figures and able to afford to buy a home," said Pompei.

Median prices for a resale home in the Bay Area topped out at a record $393,000 last month--up 18 percent from February 2000--prompting the information service, DataQuick, to report in a headline that "Bay Area Home Sales Strong, Prices Up."

"We're watching for signs of the predicted downturn in the real estate market, but so far the numbers indicate more of a normalization than anything else. It could be that some investment money is being moved from the stock market into real estate. Bay Area homeowners are 'making' almost $6,000 just by owning a home right now," said Mike Ela, DataQuick's president.

According to the National Association of Realtors, the national market remains buoyant with existing-home prices continuing to rise. The association cited the availability of numerous properties as a reason for the increase, particularly in California. With the national average commitment on a 30-year fixed rate mortgage well below 7 percent, mortgage rates are sliding down to induce buyers, as well.

While the market seems to be in transition, no one has an absolute lock on where or when it will settle. Defining the status is a challenge and there are more than several viewpoints. When Silicon Valley Association of Realtor members were asked to give their opinion about the current market, they all agreed on one fact--the market is changing.

The statistics tell the story for Manager Chris Trapani of Century 21 Seville-Contempo, Los Gatos office. After reviewing the actual sales for February 2001 versus one year earlier in Saratoga, he found a big difference between 33 sales in 2000 and 11 sales during the same period this year. In addition to noting fewer sales, his take on the market finds an increased inventory, particularly in the $2 million and up range, not encountered since 1998.

"This pattern can be seen in almost every area of the market in Santa Clara County. The market has definitely changed since last year at this time," said Trapani. "A number of the comparable sales had closing prices far above the actual list price particularly in 2000. Are these valuations sustainable given the fact that there was a frenzy creating this overbidding and phenomenal competition? I would argue that the true, sustainable values may be somewhere between 1998 and early 2001 valuations," he said.

He believes sellers must be realistic about the reality of the perceived appreciation over the last two years. Trapani thinks it's critical to consult with a professional and knowledgeable Realtor before entering the market. "Listen to a Realtor's advice and forget about what the neighbor's home sold for in spring 2000," he said.

"For the seller who is truly motivated and/or needing to sell, they must price realistically so that they do not have to chase any further downtrend in the market. They need to distinguish their property from the others who wished they sold in 2000 and are still listed at unrealistic prices," said Trapani.

Realtor Cristina Page echoes Trapani's advice to sellers, to set a realistic price and not expect exorbitant offers. "Home prices are starting the 'reduction' cycle and staying on the market a little bit longer. The majority of my colleagues are saying we are returning to normal times. By 'normal times' we mean that regular people, like doctors and other professionals, can now afford a home in this area," said Christina Page of Coldwell Banker in Palo Alto.

Going back to the basics is what Realtor Elvie Gamboa of Coldwell Banker in Palo Alto, labels the newest market trend. She sees the shift back to normal as more of a buyer's market where even first-time buyers can now compete for properties at normal appraised values, rather than the inflated 20 percent or more markup due to the dot-com buying frenzy.

"The market will still be good and prosperous and perhaps better. Low interest rates enhance borrowing tendencies for everyone and encourage bids for real estate on the market. More disclosures must be incorporated and appraisers must do their utmost due diligence to appraise the property well," said Gamboa.

John W. King, president of Alhouse King Realty in Palo Alto, said, "In a space of only two or three months, the market has turned upside down with too many homes listed at overly inflated prices. Too few buyers are willing to risk buying a home for fear of seeing the equity evaporate over the next couple of years.

"What buyers should know, is that this is a great buying opportunity. They can purchase a home at a price they can afford with little or no competition from other buyers. If they consider the long term ownership of property, which should include mortgage interest deductions, 10 years from now they will be very glad they bought," said King.

King recommends sellers be patient when receiving offers and flexible on the price. "It will probably take three to four months for the new market reality to set in to where we will see significant changes in expectations of sellers," he said.

Whether buying or selling, it's important to understand all there is to know about the current market in order to make an informed decision. An experienced Realtor will help either a buyer or a seller approach this new market trend with the knowledge and patience to complete a successful transaction.

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