|Fall Real Estate 2007
Publication Date: Friday, October 12, 2007
Cities of dreams
by Carol Blitzer
While some Realtors still cling to old clichés -- when will that bubble burst? -- others are choosing a new image to describe today's housing market: making lemonade.
The lemons? For starters, the number of houses on the market (inventory) is way down.
And, many would-be buyers are scrambling to get pre-approved for mortgages with low long-term interest rates.
But the sweetener -- at least for Realtors -- just may be that median prices in this micro-market continue to rise, as they have for the past five years. And they're selling almost as fast as they can be listed.
Even if inventory is down, what does it actually mean for a prospective buyer? The dearth of houses in local micro-markets generally means buyers have fewer choices -- and often little wiggle room for negotiating.
Suzie Provo, an agent with Alain Pinel Realtors, Palo Alto, has seen low inventory all year, noting 30 homes actively on the market in August. Yet entry-level prices seem to have gone up, she said. "A year ago you could find something under a million, but now you'd be hard-pressed to find any. ... There's a huge pent-up buyer demand, which is why on the lower end you're seeing sometimes 11 to 25 offers on properties," she added.
Her colleague at Alain Pinel, Sherry Bucolo, noted that Palo Alto inventory at the same time last year was 68, and back in 2003, it was 110. Sales are down "because we just don't have inventory to sell. ... We're in a really short-days-on-market time," she said, noting that it's common to get multiple offers, even at the $3 million level.
In Mountain View, the picture is similar. Deniece Watkins, a Coldwell Banker, Los Altos, agent, said, "Percentage-wise, comparing to a two-week period from one year ago (in August), buyers have 33 percent fewer choices if they want to buy a home today in Mountain View, due to lower inventory. They have 15 percent fewer choices than they did for townhomes one year ago."
Intero's Jeff Gonzalez has been selling homes and townhomes in the 600-unit, 10-year-old Whisman Station neighborhood, which he described as "a very desirable place for newer homes in a good community. ... It's taking slower to sell, but they are selling," he said of the higher-end yet entry-level homes.
What's really moving are the more desirable neighborhoods (mostly in the Los Altos School District), such as Waverly Park, Cuesta Park or Varsity Park, he added.
"The better real estate is still selling very well," Nancy Manning, an agent with Coldwell Banker, Los Altos-San Antonio, said. "In The Crossings we've hit some new highs for row houses in the $740,000-range; they hadn't gone above $720 before. Mountain View is still affordable, while Palo Alto and Los Altos are not for many people."
While inventory is actually up in Santa Clara County as a whole, "in Los Altos, Palo Alto and Mountain View it's very low, at entry-level and starter-price points, which is in such demand," Manning added.
Across the creek, Steve Bellumori of Coldwell Banker, Menlo Park, acknowledges that there's not much new in this "land-driven" market. Even the statistics in Menlo Park are flat: Last year there were 61 homes on the market in July, this year 68; last year there were 205 home sales in the first six months, this year 233, "and there were more homes put on the market in 2007," he added.
"The more homes that can be put on the market, the more that sell," he said, mentioning a small home he listed just before Labor Day, a traditionally dead sales time. Located on a tree-lined, pretty block, he thought it could have gone as a teardown, "but the house was really charming. We fixed it up some, not knowing how it would go." After 188 agents traipsed through, as well as 100 groups of potential buyers, four offers came in -- all over the asking price.
Houses do appear to be staying on the market longer than last year, but Bellumori doesn't see a huge change year-to-year. "If it's well-priced, there's definitely people right on them."
Any concerns about the mortgage wobblies in August and September are likely to dissipate soon, he said. "Buyers tend to pull back a little bit, thinking things will fall back, but it takes several weeks and it starts to work itself out."
Bellumori stresses that what's happening on the national scene plays out differently in the local market. In Portola Valley, for example, he says the hardest part is finding anything.
"There's been a shortage all year, in all communities. The key is whether or not there'll be a sustained shortage.
"This has been a pretty easy market for financing; now we're back to basics: qualify for your loan. It's nothing new; same scenery," he said.
The bottom line: "When rates are high, you get the best prices; if you wait for rates to go down, you pay more for the house in the long run because of competition and escalation of price," Bellumori said.
Will there be a long-term impact on the national mortgage implosion?
"We may not see 10-day, two-week close of escrows and may see some contingencies. Those are the impacts. I don't think it will deter buyers in our area. ... It's a little longer to go through the process and there's a little more scrutiny," Provo said.
In her real estate seminar, Manning deals with the tax consequences of selling real estate (her next one is scheduled for Nov. 3, 10 a.m. to noon, at First American Title Co., 431 Florence St., Palo Alto).
"I've got buyers that with the recent credit crunch have been hit by a 10 percent reduction in buying power. So if they used to be able to afford $1.5 million home or $800,000 condo, they can only afford 10 percent less, because they can only be approved for their fully indexed and fully amortized rates," Manning said, noting that even if they were applying for an interest-only mortgage, they would be required to be approved for a fixed-rate loan with its more strict requirements.
With most new buyers short on cash but big on equity, they'd need income to substantiate a $6,000 to $7,000 per month mortgage, she said, adding "if the lender will approve you at less than 10 percent you need to have stellar credit and income history -- A+++. I'm very cautious myself about accepting an offer from a less-than-stellar lender; I'll accept a different offer."
Her advice to homebuyers: "Make sure you're working with a reputable lender; re-evaluate your financial and pre-approval status because it will have changed in the last two or three weeks," she said, stressing that if the approval is more than a month old, the homebuyer will have to go through the process again for approval.
As for advice to home sellers, no matter what the market, most Realtors agree that staging can make a difference -- both to the price and how quickly the home sells.
"You get a better value, you can sell it fast, and pretty much get multiple offers for properties that are staged very well," Gonzalez said. "It's important that we emphasize in a good and bad market, staging makes a big difference. In a good market, could get 15 percent more; in a terrible market, you could sell with minimal marketing time."
Watkins is even more blunt: "When listing, don't fool yourself by thinking staging will not benefit you. Drive around with your Realtor and see the other homes on the market currently. Compare yours to theirs. If they are all staged and you are not, you will inevitably be the ugly duckling. This will not tend to render you the highest price for your home."
"I don't see gloom and doom in our area. We're not bullet-proof but we're dealing with a more qualified buyer pool. If they're move-up buyers that are moving out of areas more affected by the market -- people can't buy their homes because they can't get loans -- we might see that later.
"By then, they might have fixed what's going on in the mortgage market. In 23 years we've had ups and downs but never a wholesale sell-off," Provo said.
"The Palo Alto market can be unpredictable, in the sense of when to put a house on the market. Can't say Christmas will be slow -- an average of two to three sales in December is pretty good. ... March and April are still a good time to list. Buyers come through in the fall, just starting their search. They don't realize it might be good to buy now because there's less competition," Bucolo said just before Labor Day.
"It's hard to lose a house you really wanted. It could take another year to find a house you like. If you find what you want, you have to go for it," she added.
--Asst. Editor Carol Blitzer can be e-mailed at email@example.com.