Saratoga News

Homes

Home sales drop, but the economy remains good

Indicators of market distress are absent

By Rose Meily

For the 14th month in a row, sales of Bay Area homes have dropped, even as prices continued to slowly edge upward. Although last month was the slowest May since 2001 with just 7,864 homes sold in the Bay Area, the economy remains good and market distress indicators are still largely absent, according to a real estate information service.

"This is a market that is rebalancing itself after several boom years. What we're seeing is stable core demand, and a decline in speculative and discretionary buying," said Marshall Prentice, the president of DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, which monitors real estate activity nationwide.

A total of 9,064 new and resale houses and condos were sold in the nine-county region in May 2006, up 8.4 percent from 8,358 for April, though down 19.8 percent from 11,308 for May last year, according to DataQuick Information Systems. Last month was the slowest May since 2001, when 7,864 homes were sold. The strongest May sales since 1988 were May 2004 with 12,028 sales, and last year. May sales hit bottom in 1995 with 5,779.

In Santa Clara County, home sales in May were down 21 percent from the previous year. A total of 2,241 new and resale houses and condos were sold in the county in May, compared with 2,838 the same month last year. The median price of a Santa Clara home in May jumped 8.6 percent to $682,000, compared with $628,000 from May of 2005.

Jeff Barnett of Alain Pinel Realtors in Los Gatos remains confident homes in the Bay Area will continue to hold their value, despite the drop in home sales.

"Last year was the best year we ever had in real estate. Sales are down more than what we were anticipating, but appreciation is at about 9 percent. We're anticipating prices to hold," Barnett predicted.

"It's still a very healthy market out there, especially for individual home sellers. There are more homes out there than last year, but there's not a glut of homes in the market, unlike other areas in the state," Barnett added.

Sandy Barnes, a Realtor with Intero Real Estate Services in Saratoga, said, "We're fully immersed in this market. There are many jobs here. We're in a normal real estate market right now. Homes may be in the market for three months or more, if they are very high-priced. But we're seeing cash buyers."

Barnes, who has been a Realtor for 22 years, said in her experience, "prices won't dip. They'll maintain their values. The downside is for first-time homebuyers without a down payment since with interest rates rising, they can't go in with 100 percent financing."

The median price paid for a Bay Area home was $631,000 last month, another record. That was up 0.5 percent from April's $628,000, and up 6.1 percent from $595,000 for May a year ago. Last month's year-over-year increase was the lowest since May 2003 when the $427,000 median was up 3.4 percent.

The typical monthly mortgage payment Bay Area buyers committed themselves to paying was $3,091 in May. That was up from $3,048 in April, and up from $2,646 for May a year ago. Adjusted for inflation, mortgage payments are 22 percent higher than they were at the peak of the prior cycle 16 years ago.

Indicators of market distress are still largely absent in the Bay Area. The use of adjustable-rate mortgages has decreased in the last five months. Foreclosure rates are coming up from last year's low point but are still below normal levels. Down payment sizes are stable, and there have been no significant shifts in market mix, DataQuick reported.

"These trends should continue through the summer buying season. There is uncertainty about the market after that, tied to broader economic trends," Prentice said.

Judy Hamilton of Bankers Network Corporation in Los Gatos said, "We've seen slowdown because interest rates have gone up and they will most likely continue to the rest of year, but the adjustable-rate mortgage is still an incredible loan option if used properly and explained completely.

"Down payment sizes are actually better in some ways," Hamilton remarked. "There are more purchasers coming into the door with more funds than last year. Purchasers seem to be more ready, more capable of coming in with a cash down payment and closing costs, which in turn makes it better for them and gets them into a good loan product. There are still people with credit issues. People need to remember that a good credit score still an important entity in obtaining a good loan."

Ron Gates, Region 9 district chair of the Silicon Valley Association of Realtors and a California Association of Realtors board director said, "In our marketplace, the values continue to rise. We are in a reasonable market, and we're seeing movement toward more normal conditions, as opposed to the accelerated, high inflation type of market of the last few years. The boom can't continue. I've seen it before. But overall, the values will be sustained and increase on a regular basis."

Gates has been a Realtor for 35 years and is with Alain Pinel Realtors in Los Gatos.

Statewide, a total of 51,750 new and resale houses and condos were sold last month, up 9.5 percent from 47,250 for April and down 15.2 percent from a revised 61,000 for May 2005.

The median price paid for a home last month was $469,000, up 0.2 percent from $468,000 for April, and up 9.8 percent from $427,000 for May a year ago. Statewide, the typical mortgage payment that homebuyers committed themselves to paying last month was $2,298. That was up from $2,271 in April, and up from $1,899 for May a year ago.

Market stress indicators are still very low statewide: Down payments are stable, speculation buying is moderate, there are no significant shifts in market mix and default rates are rising, but still low. Earlier increases in non-owner-occupied purchase activity and flipping activity have leveled off. The use of adjustable-rate mortgages has dropped the last five months.