Publication Date: Wednesday, April 7, 2004

It's 2000 all over again
Low inventory, higher prices are driving the market

by Carol Blitzer

They're b-a-a-a-ck. "They" are buyers -- and whether it's an uptick in the economy or election-year mania, they seem to have an insatiable hunger for houses.

Since the beginning of 2004, inventory has been exceedingly low -- about half of last year -- and buyers have had to compete for the few houses available.

For sellers, this is good news: Multiple offers usually bring higher prices. For buyers, it means making decisions quickly, often lining up financing in advance, sometimes paying more than anticipated.

"Get your property on the market as soon as possible," advised Bill Lewis, manager of Coldwell Banker's Woodside and Portola Valley office. He pointed to the lack of inventory, especially in certain price ranges, that could work to the seller's advantage.

"Right now we're probably starting to get a few more high-end listings on the market," he said, but noted that there wasn't much available in the $1 to $1.2 million range. "Evaluating each city and looking for holes can affect whether one would want to put a home on the market now or wait for a while," he added.
Since most homes are listed between mid-February and June, he suggested listing a house earlier, when there is less competition. Everything seems to be selling now, he noted, especially properties just put on the market and those that have lowered their prices after being on the market for a while.

As for advice to buyers: "If you like it, grab it."

That's what Rani Fan, owner of Aspirin' Real Estate Investments in Menlo Park, suggests to prospective homebuyers anxious to enter a market that's starting to resemble the 2000 dot-com mania.

With interest rates low and inventory lower, houses in the $1 million to $1.4 million dollar range are whizzing off the Multiple Listing inventory in less than two weeks, many at above the asking price.

"Since last September/October, the market has picked up dramatically. ...

Before September, the houses over $1 million just sat there forever," Fan said.
Toward the end of February there were nine homes on the market in Los Altos in that range, she said. Only one -- which she thought was priced too high -- had been on the market since December. The rest were on the market for less than a week. "Basically, there's no inventory," she said.

A year ago Alain Pinel agent Grace Wu had four listings in the $1.5-$2 million range, which were languishing on the painfully slow market and were eventually pulled off. Three were put back on this year and all sold beyond the asking price, she said.

"This year is really good. Last year people chopped down the price, asked for discount. This year they are willing to pay," she said.

That's particularly good news for Wu, who's been marketing 14 new homes on Glenbrook Court in the Green Acres neighborhood of Palo Alto. Each sits on a lot ranging from 7,200 square feet to a quarter acre, with 4,100 to 5,800 square feet. Even at more than $2 million each, most were sold by the end of the year. At the end of February there were four left.

"Yesterday (in late February) we had close to 40 groups of people walk through an open house," Wu said, noting that it's a whole new subdivision, a rare entity in Palo Alto. Prospective buyers came from all around the Bay Area and out of the area.

Fan's advice to prospective homebuyers in this competitive market? "They should know what they want. That's the key. The worst is to chase the market," she said.

But, she added, don't forget the fundamentals -- location and whether it will be a good, long-term investment -- in the pressure to buy now.

"It feels like the buyers are very careful. I've seen some overbids, but not like back in 2000," she added.

Coldwell Banker agent Maureen Hamner, who does a lot of work in the $1-1.5 million range, is hopeful that a lot more sellers will enter the market between now and May. "That will help a lot. There are quite a few buyers for not enough homes right now, but I think that will change."

Alain Pinel's Sunny Dykwel, who was named Realtor of the Year by her peers at the Palo Alto District of the Silicon Valley Association of Realtors (SILVAR), eagerly anticipates more inventory. She's been seeing multiple offers -- one with 32 offers -- and rising prices for the past few months.

"We're not really back to 2000 level, but we're getting close," she said, adding that she won't even write an offer without the prospective buyers having a pre-approval letter for financing.

But, with multiple mortgage programs available, she said, "we can close in a week or two."

Buyers are more sophisticated these days, she added, and often do much of their "home" work on the Internet before they even contact her. "By the time we meet buyers, they've already looked at the neighborhood, seen houses, and are ready to meet," she said, noting that she sold three houses in December for people she had met at open houses.

The Internet, she said, is "helping us do our job better."

At the lower end of the market, finding a home can still be a major challenge. Dykwel is working with three buyers who are looking in the $550,000-$600,000 range, between Mountain View and San Mateo.

At the end of February, she had only found four properties in that range that were worth looking at. "There's not much to show them. When we do, we run across multiple offers," she said.

Losing house after house because of multiple offers can be very discouraging. The role of the agent is to help the buyers come up with the right price -- and to advise them when going over the asking price simply isn't worth it.

"It's really draining, as far as emotion," she said, "and it's not fun for us, the agents. For the buyers, at the end of the day, it's 'wow, we have a home!' They really appreciate this work and the learning experience."

Stepping back and taking a longer view, Coldwell Banker agent Brendan Leary noted that the real-estate market has experienced a steady incline for the past 20 years, with the exception of hiccups when investors bailed out of the stock market or when the WorldCom/Enron debacle became public.

Whenever supply is down, multiple offers result. "That end of the market has had a voracious appetite," he said.

At the higher end, "pricing has come back to reality so we're seeing tremendous activity."

His Coldwell Banker colleague Tom LeMieux noted that the bulk of sales in Atherton were in the $1 to $3 million range in 2003. Although volume of sales was up by 18 percent, the actual median price fell 5 percent.

In Menlo Park, LeMieux found that prices held steady, with volume up about 9 percent. About half the homes sold for $1 million or less, and more than one-third sold for over the asking price.

There's strong pressure on pricing to go up -- not 50 or 100 percent because it's limited by the buyer's ability to pay, noted Leary, while pointing to new bank products that are more cash-flow sensitive, such as interest-only products. "The only way demand goes away is if people can't pay," he added.

"Glitches in the market have always been short run and the real estate market has come back with great vigor after each of these aberrations," he said. "There's still lots of money out there and people are willing to spend it."

Assistant editor Carol Blitzer can be reached at cblitzer@paweekly.com.

2003 sales of single-family homes
City
Year
No. of sales
Median price
% change
Days on market
Atherton
2003
2002
94
77
$2,175,000
$2,300,000
-5.43%
69
52

Los Altos Hills
2003
2002
89
60
$1,930,000
$2,112,500
-8.64%
54
51

Portola Valley
2003
2002
75
68
$1,520,000
$1,370,000
+10.95%
41
40

Woodside
2003
2002
90
88
$1,732,500
$1,425,500
+21.54%
74
50

East Palo Alto
2003
2002
143
126
$421,000
$399,000
+5.51%
64
66

Menlo Park
2003
2002
502
458
$847,000
$840,000
+0.83%
34
33

Mountain View
2003
2002
379
385
$679,500
$681,000
-0.22%
27
30

Palo Alto
2003
2002
544
518
$903,550
$926,750
-2.50%
34
33
Completed sales information courtesy of SILVAR, Silicon Valley Association of REALTORS