California real estate

For years I've written about the function of NASDAQ stock wealth on prime Silicon Valley real estate. I like to summarize with this phrase, "You don't buy a $2 million home in Palo Alto with a $1.8 million sub-prime loan. You buy it with $1.35 million in NASDAQ capital gains and a $650,000 in financing."

That fact has buoyed real estate demand and prices from Saratoga through San Francisco in the past two years - even as the lower end of the market has been pummeled.

Consider this: two companies (and their stocks), Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG), minted several thousand local millionaires between 2004 and 2007. (The back-of-the-envelope calculation works like this: Of GOOG's 16,000 employees assume 5,000 locals are mostly vested. Assume they collectively own maybe 8% of the company. At GOOG's 2007 peak of $711/share that's $18 billion in local wealth created since 2004. AAPL has a similar scale from an $11 stock in 2004 to $190 peak, spread over maybe 8000 vested local employees, is an additional $13 billion of local capital gains wealth created in the preceding four years.)

Many of those newly wealthy want to buy a home. The result is that simply from Google and Apple you have hundreds or even thousands of buyers at the high-end of the market.

Couple this demand with the peculiar small-supply situation of the local region (limited new construction yields only a handful of available properties) - and you get the recipe for resisting the bursting bubble right up through the first half of 2008.

Local Realtors know that the supply side of the equation is not likely to change drastically. There are simply no homes being added in close-in Silicon Valley unlike, say suburban Phoenix.

Inventory of available single family homes in Palo Alto, CA compared with Paradise Valley, AZ. 90-day rolling averages. Data as of October 3, 2008

So the recipe depends on capital-gains-wealth-driven demand.

And guess what? Year to date for 2008, both GOOG and AAPL are down by half. In the last 9 months or so, $15 billion of local wealth in just those two stocks has evaporated.

The bubble burst has only started to hit us.

[note: I am aware this is an over simplified argument. Home prices do not correlate with the movements of any one stock. We've checked. In some of these markets, they do correlate with movements in the NASDAQ as a whole, and we all know this isn't an isolated dip.]

We love it when our clients get good blog fodder from our data. We need to be more diligent about showing the link love to 'em. Surfing around with a little insomnia tonight I found a whole set from just the last day or two. Check out these wonderful realtors with great, data-rich blogs:

Wilkas Group in San Mateo

Irina Natchaev dives into the San Gabriel market

Ryan Hartman in Philadelphia (Welcome aboard Ryan!)

Marian Bennett in Half Moon Bay

Here's a special hint: if you're a home buyer or seller looking for data in any of these markets, you can actually subscribe to the detailed local reports from us. But why would you? These marvelous pros will give you the reports for free! How cool is that?!

Oh my.

Single family home prices in Stockton, CA. Real estate data as of July 4 2008.

Checking out Andy Kaufman's blog this morning, I couldn't help but noticing the contrasting AltosCharts he's showing for Oakland and Berkeley California.

Oakland of course is the bigger city, but these next-door-neighbors share some parts that are virtually indistinguishable from each other. There are some spectacular parts of Oakland and sketchy parts of Berkeley and vise versa. But look at the home price trends over the last year.

Real estate prices in Oakland and Berkeley, California as of mid-June 2008. Data for single family homes.

Likewise look at the trends in inventory levels for the same to cities.

Real estate inventory levels of homes for sale in Oakland and Berkeley, California. Data for single family homes through mid-June 2008

You couldn't have a clearer picture of the real estate pricing phenomenon we're seeing all over the country. It works like this:

• Demand is off everywhere and everyone knows it.
• So if you're a home buyer in the East Bay with good cash and good credit, you get your pick. In this case, Berkeley has generally better schools, more cachet, etc., so the buyers go there first.
• There's enough demand to keep the market afloat.
• If you don't have good cash and good credit, you get nothing. There is literally no spillover demand for Oakland.
• A few years ago, a home buyer might look to the nicer neighborhoods in Oakland for additional inventory or a lesser school-premium price. Not the case any more.

Actually, I'm sure we could dig through the zip code level data in Oakland and illustrate a similar phenomenon within the cities themselves. But this particular story jumped out at me this morning, so that's what gets covered.

Altos Links: Oakland real estate data, Berkeley Real Estate Data

We're have an internal game here at Altos - Guess the San Jose Market Bottom. It's quite clear that you can't predict the market bottom by looking at the price chart alone, but what else should you look at? Inventory provides a clue. Check this out:

Single family homes for sale in San Jose. Data from January 2005 through June 2008. Note that in 2007, the typical summer-seasonal inventory plateau burst.

The question is, Is that the first inkling of a summer plateau this year?

If inventory levels flatten out this sumer then maybe, just maybe, the worst of the carnage would be over. That inventory could work its way out over the next couple years. What do you think? Is the recession going to make this chart jump even higher this fall?

Here's where you can keep an eye on the live San Jose real estate data.

Here's a funny Meebo-IM chat I had with a home buyer yesterday. This guy is looking for a negotiating angle with home sellers. Smart!

[15:37] meeboguest: hi

[15:37] mikesimonsen: hi

[15:38] meeboguest: will prices in Milpitas Area continue to fall?

[15:38] mikesimonsen:

[15:39] meeboguest: seriously....how do I negotiate with seller to factor another 10% reduction in price?

[15:40] mikesimonsen: well, you can bring our Milpitas report with you and use it to illustrate not only prices, but demand levels and days on market trends

[15:41] mikesimonsen: you can say, "Look at this, you've got easily another few months before this thing moves and I'm willing to buy now!"

[15:41] mikesimonsen: In the reports it even breaks up the data by price range in that zip code

[15:42] mikesimonsen: so you can say, "The market is even worse for sellers of homes like this. So you're lucky you found me!"

[15:42] meeboguest: thanks...I am even luckier if that report is free

[15:43] mikesimonsen: for $19 you're getting a bargain!

[15:43] mikesimonsen: I'll expect a thank-you bottle of wine when you get your price

15:43] meeboguest: how do i get the report?

[15:44] mikesimonsen: go to this page, register, and buy the basic report: http://www.altosresearh.com/research/CA/MILPITAS

[15:44] meeboguest: thanx

[15:45] mikesimonsen: you bet! good luck!

What do you think the chances are that the Seller's Agent is prepared with market data to counter-negotiate? My guess is that they'll get blindsided by this aggressive buyer's approach. Maybe, just maybe, we can motivate the seller's agent to prepare better in the future...

Spent much of the day looking up data for press requests. Everybody wants to know if we're at a bottom. Thought I'd drop some in here. Not a lot of time to write today, so here are some comparison charts for homes around the Bay Area. San Francisco, Burlingame, Walnut Creek, and San Jose. All Data as of April 11 2008.

Median Price Trends for homes in San Francisco, Burlingame, San Jose, and Walnut Creek.

Days on Market for the same cities. Note the seasonal decline still leaves us higher than last year at this time.

Our Market Action Index for the same cities. This is a composite of market demand statistics rolled into one number. Under 30 implies demand weakness, or "buyer opportunity." Under 20 is frigid. Given the tight scale on this chart, conditions are not worsening considerably in the last few months.

A couple of charts to chew on this morning.

How's the condo market in San Francisco? Are all those new developments flooding the market yet? Let's look at pricing and value trends for Condos in the city.

Median Price Per Square Foot for condominiums and TICs in San Francisco. Data as of March 30 2008.

Looks like pricing trends are holding nicely in the past year. Why is that? A quick hypothesis is that despite the fact that there are tons of new developments coming on line, the existing inventory of condos is actually very low relative to the population and immigration in San Francisco.

SocketSite shows some year over year inventory charts for real estate in San Francisco today. Here's how the inventory breaks out between single family and condominiums.

Inventory of homes for sale in San Francisco as of March 30 2008. Includes pendings.

Altos links: San Francisco real estate reports

The New York Times last week carried a story on the tale of two housing markets.

AUSTIN, Tex. — The real estate market these days is a tale of two Americas, and one of them is not doing too badly.

In the America of big-city housing markets, especially on the coasts and in the struggling industrial Midwest, the huge run-up in values in recent years has given way to big drops in prices and sales volume. Millions of people owe more than their houses are worth.

But in the other America, specifically in cities like Austin; Grand Forks, N.D.; Yakima, Wash.; and Salem, Ore., the available evidence suggests the real estate market is holding up. Prices there never boomed as crazily as they did in the big cities, and now, even though volume is down almost everywhere, prices in many of these towns are firm or rising.

We'll leave aside the fact falling prices in the struggling industrial towns and the falling prices on the coast are barely related to each other and focus instead on the last statement.

Are home prices in Austin, Texas indeed holding up? Let's look:

Comparing home price trends in Austin Texas, Phoenix Arizona, and San Diego CA

From our perspective, Austin is indeed holding up better than some of the most bubbly markets, like Phoenix and San Diego.

Keep in mind though that in every market, the answer is: it depends. It depends on your price point, it depends on your neighborhood. In fact if we dive into Austin a little deeper, we find where that even though the prices haven't adjusted deeply, we can see where market demand is indeed cooling.

Days on Market for homes in Austin Texas. Data as of February 15 2008. Each line is a price quartile. First Quartile are the most expense 25% of homes on the market.

Days on market is climbing steadily across all price points. Despite a seasonal improvement in market time, The high end of Austin is on the market for a pretty long time right now. Buyers are in no hurry.

Furthermore, in Austin, when you look at the price quartiles, you can see the top of the market is squeezing but the bottom remains reasonably solid. This often implies, as the Times suggests, that the underlying economy is strong, immigration is positive, and people aren't so worried about their jobs. Here's the chart of home prices in Austin, by quartile. Note the slight squeeze at the top end of the market.

Real Estate Price trends in Austin Texas as of February 15 2008

So I'll conclude with a cautious agreement with the Times. Yes indeed there are markets so far escaping major carnage. Many of these markets didn't have the incredible upside in the past few years, so that stands to reason. Finally though, nearly all markets are showing signs of weakness. The key worry for all these markets is that they're following the economy, not leading it. If a recession evolves into full bloom, I don't see how anyone is spared.

Links:

Austin Real Estate Report

San Diego Real Estate Report

Phoenix Real Estate Report

Last week we published the February editition of our National Housing Market report [PDF download]. I was traveling and forgot to add it to the blog, so here it is. We've expanded the coverage this month and added a few more cities ebyond the initial 20 covered by the Case Shiller Index. We'll add a few more important cities in the upcoming versions of the reports too.

Here are the highlights from this month's report.

• Listing prices declined in 19 of 22 markets during January. Prices only increased in the New York metro area during January and were flat in Dallas and Phoenix.

• The largest monthly decline of 3.6% occurred in San Francisco. Over the three month period, listing prices in San Francisco have fallen by 6.1% from $708,551 to $665,100. The other California markets of Los Angeles and San Diego logged declines of more than 2% for the month of January.

• Property inventories declined in most markets except in the Northwestern markets of Seattle and Portland. Inventories tightened sharply in the Midwestern markets of Cleveland and Detroit with decreases of 10.4% and 5.4% respectively during January. Seasonal declines in listing inventories are typical during the winter months.

• Markets with the longest time-on-market are Miami and Minneapolis at an average of 144 days-on-market. Miami’s days-on-market only increased slightly from the previous month’s 143 days while Minneapolis jumped over 5% from 136 to 144 days. Sixteen of 22 markets had an average days-on-market of over 100.

• Denver led all markets with the fastest rate of inventory turnover at 61 days, followed closely by Dallas and San Diego at 80 days. The sharp decrease in Denver’s days-on-market indicator – almost 39% during the past three months – coupled with an inventory reduction of over 11% during the same period, should be a positive for listing prices in the coming spring selling season.

Jonathan Miller published the November Radar Logic RPX housing market report over the weekend. It's easy to spot that Sacramento is leading the nation down.

[aside: Radar Logic is cool. They measure Price Per Square Foot and try to do it across all properties, condos and single family homes, new and existing construction. No small task. The price per square foot approach is intended to measure value of the property regardless of the size of the property itself. In the real estate derivatives trading business, Radar is getting all the mindshare. Case Shiller is falling behind. more here.]

In the report just published for November, Sacramento saw a price-per-square-foot decline of 18%. Zowie. For those of you unfamiliar with California's central valley, this is an area dominated by lots of new construction, in huge projects, partly as Bay Area super-exurb. So the underlying economy in the Central Valley isn't nearly as dynamic as San Francisco, San Jose, or Los Angeles. Also much less dominated by the high-end, Sacramento is feeling the subprime fallout harder than most.

So Radar Logic is publishing for November. What are the real-time stats saying? Sacramento is not seeing any relief yet. Here's our price per square foot for Sacramento through February 1 2008.

Price Per Square Foot for single family homes in Sacramento, CA through Feb 1 2008. Notice the price is slightly higher than the Radar Logic number. That's because we track Condominiums separately and this is for the city of Sacramento specifically. The important factor is the direction.

Sacramento Housing Market Data Links:

Our free Sacramento Real Estate Research page

Here's a solid Sacramento Area Blog for more local flavor.

We've had some really nice attention in the press and blogosphere the past week or so. Here's a quick summary so you can see what people are saying about Altos.

O'Reilly Radar: Tim O'Reilly highlights our real-time data products for Wall Street and the housing derivatives markets. I'll be presenting on this topic at the O'Reilly-sponsored Money:Tech conference in New York February 6-8.

In SFGate.com / San Francisco Chronicle Carol Llyod finds her friends in the market for a home in San Francisco - everyone is surprised how hot the market is. I love this kind of analysis. The data reveal so much more than the headlines can capture. Carol - have your friends email me and I'll set them up with the neighborhood level and insights that we do in our detail reporting.

Dustin thinks we're going to get acquired. And Robbie gives us a nice plug on Rain City Guide.

The bloggers at Redfin have been especially prolific lately. I like the approach Redfin uses for their blogging work. They've got a team of bloggers, each with an intelligent voice, tackling the local real estate markets they're in. None of it is too controversial, but it's solid content, targeted well for their customers.

Altos Links:

National Data for the Housing Derivatives and Case Shiller markets

San Francisco housing market

Some posts just write themselves.

Inventory of homes on the market in San Jose California as of January 2008

Single Family Home Prices in San Jose California as of January 1, 2008

Can't. Help. It. Must. Write. More.

Ugly? You betcha. Do these tell the whole story? Not a chance. In Silicon Valley, San Jose is the dominant market, of course. San Jose is a diverse community, with lots of sub-prime and other crazy loans in the past few years. But also some really great neighborhoods with prosperous, fully employed folks. Lots of big, but not-risky loans too. Here's how the market in a desirable part of town, Willow Glen, is holding up. I've done the price chart in Quartiles so you can see the trends at each price point in the market.

Homes in the Willow Glen neighborhood in San Jose, CA zip 95125. Prices holding up much better than the broader market in San Jose.

Available homes in Willow Glen neighborhood of San Jose CA as of January 1 2008. Inventory is up, but much less than the rest of the city.

Link: San Jose Housing Market.

I've never been a North Beach guy. Maybe it's the Italian food thing. On the other hand, when I moved to the city almost 10 years ago, there was essentially no such thing as a "neighborhood" in South Beach. So I lived in Potrero, which shares the 94107 zip code with South Beach. As I zip through the ball park area these days, I'm blown away by the changes. It's all so new that it feels a little soul-less. That's such a surprise in San Francisco. I have a feeling though, maybe if I were migrating today, I'd wind up there. I'm clearly not old-school San Francisco.

Anyway, check out the Battle and let Alex know your thoughts.

Bonus: Altos client Mark Choey blogs all about the new development condos in the South Beach area.

A paper in the Journal of Emergency Management came across my desk today. Measuring the Efficacy of a Wildfire Education Program in Colorado Springs

Timely, considering the state of Southern California right now and of Tahoe earlier this summer.

The program sounds like a fascinating way to increase awareness of the fire risk (awareness being the key factor in reducing the controllable variables). Preparation for disasters like this is of course subject to the Black Swan effect:

...most people are uncomfortable making risk estimates of uncertain events such as wild fires... They may think, "There has never been a wildfire where I live, so it is very unlikely that there will be one in the future."

So what can public policy do to motivate people to better manage their exposure? In Colorado Springs, they evaluated every parcel, 35,000 of them, and gave each a rating. Now the city can tell me I have a very-high-risk property and get me thinking about trimming the pine boughs back from my cedar-shingle roof. Then they publish that information. When I go to buy a home in the area, I can factor that into my purchase. That's positive.

But is it effective? And how do we measure changes in risk perceptions? The authors of the paper took a novel approach.

Rather than simply measuring changes in risk perceptions, we examine the effect of the program on the housing market. This provides a more complete picture of how the CSFD approach to education affects homeowner attitudes toward wildfire risk.

A market-based approach. Nice. Incent homeowners to fix the easy stuff that makes up most of the wildfire risk. Very cool.

And the results?

Perhaps the most striking result is that pre-assessment home prices and wildfire risk were positively correlated. In other words, houses with higher wildfire risk also had higher sales prices. The reason for this is [otherwise desirable features also increase fire risk]...building on a ridge may increase the wildfire risk, it also provides better views.

In contrast, post-assessment there is no such correlation. Post-assessment wood roofs and wood siding now have a negative impact on price. As a result, people are migrating to safer building materials.

Good stuff. Too bad it's a lesson a bit too late for the disasters this week. We'll keep an eye on the data to see if we can discern any immediate impact on home prices in San Diego from the fires. Will report back soon.