Before calling the "median-is-useless" police and skipping to the next blog, please note references
to median here are only for context. The preferred standard for median-haters is the Case-Shiller Index which attempts
to measure sales for identical properties over time.
Today's
exercise compares sales among the cookie-cutter three-story townhouses near the CalTrain station in Mountain View. They
were all built and sold in a short period of time. Maybe not identical, but not much different either.
Triggering this week's missive
was a real estate flier arriving in the mail last week. The subject property turned out to be a few doors
down from the case study published June 11, 2006, "A median-priced house
in Silicon Valley -2006 edition," (http://www.viewfromsiliconvalley.com/id232.html) which triggered today's exercise.
Last year's subject property listed for $729K, collected bids and sold
for what we estimated was $750K in maybe 10 days. At 1,424 square feet, this was $527 per square foot.
This week's
flier shows 1,292 square feet at $689K, or $533 per square foot.
Those not bored
to tears by last year's numbers saw there was no combination of financing and current rental rates (running $2,300
to $2,500 at the time) to justify this price. Renting would be substantially cheaper than owning it. (Insert
"buying is like renting it from the bank" joke here.)
We sent an e-mail to the real
estate agent (nine days after receiving the flier):
"I noticed
a flier with your name on it for this property ~10 days ago.
I'm surveying the market & am
interested to learn more about this property. I'm particularly interested to hear any details you can share about
the amount of activity/interest? Have you scheduled a bid deadline? (Or has it already sold? If so, can
you share how many bidders? The accepted price?) "
A response arrived in
less than an hour:
"This area of Mountain
View is always a fairly hot market. Both from the location perspective as well as schools. We did have a significant amount
of activity. We had two agents write offers the first day on the market, but held them off and listened to offers after a
weekend of open houses. We ended up with 3 offers and went significantly above asking. I can not disclose the sale price,
but it will be published soon. We had a fast escrow so we'll be closing on Tuesday, July 31st."
Almost by coincidence, we stumbled
across a real estate web page showing several sales on this same street over the last three years, which triggered some research
on Zillow. Except for +/-132 square feet, and how close
you are to the trains, there is virtually no difference among these properties.
To lend some perspective,
an original-owner property in this area has a ~$339K tax assessment per Zillow (which is $4,576 per year, or 1.35%). In
other words, new buyers are paying over twice the taxes of original owners.
Surfing different listings on Zillow
finds prices as cheap as $122.5K (04/1998), implying prices are up ~6x in nine years.
Yet our renting-vs-owning numbers
show the only rationale for buying today is if the buyer assumes prices will keep going up. (Or, at least, assumes
they will never go down...)
Sale Date Street# Sale$
Sq.Ft. $/SqFt
------------------------------------------------
11/2004
102 $709K 1,292 $549
03/2005 126*
$725K 1,424 $509
04/2005 105
$728K 1,421 $512
05/2005 103
$689K 1,292 $533
06/2006 133* $735K
1,424 $516 <== last year's flier
10/2006 109 $705K
1,421 $496
11/2006 112
$715K 1,421 $503
07/2007 143 ~$720K**
1,292 $557 <== this year's flier
*= around the corner, not actually
on the same street
**= assuming it really sells $31K
above the asking price
Conclusion:
Do you see a trend in the nearly three years of sale prices? Or prices per square
foot?
Do you feel comfortable spending three quarters of a million dollars(!) for one of these cookie-cutter
townhouses on the assumption a positive trend will finally emerge?
