October 28, 2006
All RE is local (Oct'06 edition)
(c)
copyright View from Silicon Valley, 2006. All rights reserved.
There is no shortage of Silicon Valley partisans
convinced we are uniquely-immune to the laws of economics (i.e., our real estate only goes up!). The cheerleaders are
convinced sales prices can far exceed the return on rents --forever.
Yes, "All real estate is local." Especially here.
This is the third edition
of what we hope you find an interesting series. Prior editions were:
All RE is local, http://www.viewfromsiliconvalley.com/id253.html -and-
All RE is local (Sep'06 edition), http://www.viewfromsiliconvalley.com/id265.html
Let's jump right in and update the listings in our neighborhood:
1)
Right around the corner is a 1,906-square foot, 4/2. Their original $1,699,999 price was lowered to $1,588,888 last
month.
It sold this month for $1,450,000, a $250,000 (OK, a $249,999 or -15%) discount. It's listed as only six(?!?)
days on market which is clearly a realtor manipulation, since we know it hit the market in June.
2) Two blocks over
is a 2/1 with 1,030-square feet which sat empty for at least four or five months in the summer and fall of 2005. Two
months ago, the realtor wanted $1,288,000, unless we wanted to rent it instead. We were breathlessly told the successful
buyer would receive drawings (but not permits!) for a 3,300 square foot house on the property.
Last month we figured
the seller just took it off the market and the tenant renewed. The same tenant, or at least the same jeep, is still
there but we learned the house sold for $1,200,000 (or -$88K, -7% discount) after 22 DOM. (Another manipulation, since
we saw this house on the market for about three months.)
We also discovered this house last sold late-2004 at $1.026M.
Figure the seller lost ~-$40K cash flow over two years ("paid" for with -4% depreciation). Then four months sitting
empty (-$14K) minus maintenance (we saw them re-paint, but still assume only 1% /year on this 54-year-old shack) and a 5%
commissions puts their net at closing around $40,000 ($174K -$60K/5% -$14K -$40K -$20K).
Assuming no further
expenses were incurred, their ability to find the next greater fool made this a "successful" investment.
3) A nearby
shabby-looking 3/2 at 1,646 square feet went up for rent but sat empty for two or three months in the summer at a rent which
didn't cover costs. As reported in August, the owner eventually hired a realtor who listed it at $1,369,800.
As
confirmed last month, the owner rented it out, choosing to lose money slowly rather than quickly.
4) Also nearby is
a newly-rebuilt 2,900-square foot 5/3/2-car garage with central A/C. It listed at $1.9M ~October, 2005, lowered to $1.75M
in ~January and $1.68M over the summer.
This month the seller changed realtors and then the new realtor's sign disappeared
after only a week or so. A call to the "old" realtor discovered the seller is, "just taking it off the market for awhile,"
because, "he needed a break." Lest anyone confuse this with a buying signal, the agent added, "I can definitely present
you to him," if you're interested.
Hmm... Maybe when agents go back to "presenting" houses, instead of "presenting"
buyers who hope the seller will let them buy, that might become the basis for a buying signal.
Bottom line, ALL FOUR
of our August listings are now off the market!
Two sold, (at -15% and -7% off list, the latter re-renting at negative
cash flow), the third rented at negative cash flow and the fourth withdrew completely. This does seem to confirm a downward
trend, however tenuous.
Next let's peek at the add-ons from last month:
5) It's only 2/2 but 3,400 square feet
(counting basement), a lap pool but no garage and no a/c. It listed in the spring at $1.79M. By July it was lowered to $1.649M.
The
realtor sign came down a couple weeks ago. Today we saw an FSBO sign but haven't had a chance to check the price.
6)
Our other "new" listing is 4/2, 2-car garage, pool/spa, no a/c, 2,019 square feet listed at $1.448M. This property is set
back from a different main road, along what looks like an alley ("flag lot"). Even though its' 48 years old, the house and
property seem to be in pretty good shape. Compared to these other dogs, this almost feels like a bargain?!?
This
house is still listed for sale, now reduced $1.348M.
Again, $1M+ properties are common around here. The median
for our area in this week's paper is -23% over the last two months but still +6% y-o-y. The current median is higher
than the one house above still listed by a realtor. Sales volume in our zip code over the last month was 17 ( -32%
y-o-y).
Single-family listings in Santa Clara County show up as:
DQ MLS
September 3,401 4,081
October 3,326 3,899
Conclusion:
People are still buying houses. Even so, sellers are lowering asking prices and then accepting bids below those lowered
prices. Meanwhile, realtors routinely manipulate the stats on what does finally sell.
Regardless of national
headlines to the contrary, it seems extremely unlikely our local market has actually bottomed. We are
very comfortable continuing to wait for lower prices.
* * * *
The above is not intended as advice to buy, sell or
hold any stock, bond, real estate nor any other financial product or service. Buy and sell at your own risk (just like we
do.)
