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Perkins on Real Estate

Silicon Valley home prices reach a record $775,000

By Broderick Perkins

Silicon Valley home prices continued to defy gravity in April as the median single-family home price floated to a record $775,000, up from $760,000 in March and $750,000 a year ago.

Condo prices proved just as buoyant with a $500,000 median, $15,000 short of the record $515,000 set in February this year, but up $10,000 from March's median and up $35,000 from a year ago, according to Richard Calhoun, broker/owner of Creekside Realty in San Jose and publisher of the Bay Area Real Estate Market Newsletter.

The report is comprised of statistics from the area's official multiple listing service, R.E. InfoLink of Campbell.

The spring housing market ripped through price barriers despite slow sales, higher interest rates and tighter money.

"Price is defying the market in general," Calhoun said.

"What is remarkable is that sales are down from March. That's extremely unusual. I think this is going to be the last month that this will happen. Of course, I've been saying that for awhile," Calhoun added, somewhat confounded by the spring market's falling sales.

Closed sales of condos and single-family homes combined dropped from 1,647 in March this year to 1,535 in April this year. A year ago closed sales totaled even more: 2,011.

Calhoun says sellers continue to demand top dollar and motivated buyers are paying the price, an average 100.1 percent of sellers' asking price. However, those same high prices are slowing sales as a growing number of potential buyers balk, leaving the market with swelling inventories.

"It's more of a weaker sellers' market and more of a stronger buyers' market," said Edwin Resuello, president of the Santa Clara County Association of Realtors.

"There aren't many multiple offers anymore. Buyers have more choices and we haven't even hit the selling season yet. [High prices, slow sales] is puzzling," added Resuello, also broker/owner of Realty World-Silicon Valley Homes in San Jose.

In April, there were 4,284 homes for sale, including condos and single-family homes. A month earlier there were 3,814 listings. Last April there were only 3,302, Calhoun reported.

"The prices are above what most buyers are willing to pay, but sellers are not willing to recognize that. Buyers that have to buy go out and buy. If they really sat there and looked at it, they would realize the [sales] volume just isn't there" to justify the prices, Calhoun said.

Calhoun said sales volumes are at the lowest point since 2001.

Further evidence buyers are balking is that homes took an average 36 days to sell in April, compared to 26 days a year ago. More affordable condos were selling faster than single-family homes and were on the market an average 34 days in April this year, but far longer than the average 18 days a year ago.

"It's just really, really weird. Sellers refuse to believe that pricing is soft, so they are listing their homes slightly higher and they are getting it," said Mary Pope-Handy, a real estate agent with Intero Real Estate in Los Gatos.

"The county [price] numbers are incredible, up about 5 percent since January, but it feels like a flat market. I wish I had some special insights to give you," said a likewise confounded Pope-Handy.

Buyers are also coping with higher interest rates, which have been rising slowly but steadily. On May 4, the average fixed rate for a conforming, 30-year mortgage was 6.59 percent, according to Freddie Mac's Weekly Mortgage Survey.

The rate hasn't been higher since June 20, 2002. Last year, during the same week in May, rates averaged 5.75 percent, according to Freddie Mac.

"We expect that mortgage rates will continue to trend upward over the coming year, but that upward trend will be modest at best," said Frank Nothaft, Freddie Mac vice president and chief economist, in a prepared statement.

It's not just higher rates, but tougher underwriting that's giving consumers cause to pause.

Mortgage applications approved with a minimum of underwriting--so called on "slam-dunk" loans--accounted for 83.3 percent of mortgages originated in California during the April 2005 to September 2005 period. That percentage fell to 80.6 percent during the more recent period of October 2005 to March 2006, according to HomeSmartReports.com in San Juan Capistrano.

"These ['slam-dunk' loans] are the home loans that lending institutions are comfortable making because the collateral for the loan, the home itself, is considered to have a relatively secure value," said Mike Ela, president of HomeSmartReports.

Ela said as long as home prices rise and sales fall, underwriting will continue to tighten.

"That is going to happen for a period of time because lenders don't want to get caught over-lending at the peak of the market. They are assessing their risk," Ela added.

Real estate writer Broderick Perkins, executive editor of San Jose-based DeadlineNews.Com, writes regularly for this newspaper.